Treasuries Decline on Concern Government Debt Sales Will Swell
http://www.bloomberg.com/apps/news?pid=20601009&sid=anFVbz1aprWM&refer=bond#
By Dakin Campbell and Bo Nielsen
Feb. 3 (Bloomberg) -- Treasuries fell for the first time in three days on speculation the U.S. government will increase borrowing as President
Barack Obama pushes his stimulus package through Congress.
The U.S. will probably say tomorrow it will reintroduce a seven-year Treasury note and plans to sell $69 billion in notes and bonds at three auctions next week, according to Wrightson ICAP LLC. The U.S. Senate is debating the administration’s stimulus plan, with both Democrats and Republicans seeking changes worth tens of billions of dollars.
“The market is preparing itself for tomorrow’s announcement,” said
Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets in New York, the investment- banking arm of Canada’s biggest lender. “We are moving into a neutral area where guys are reluctant to do anything major in front of tomorrow’s announcement and the coming supply.”
The yield on the 10-year note climbed 12 basis points, or 0.12 percentage point, to 2.84 percent at 11:28 a.m. in New York, according to BGCantor Market Data. The price of the 3.75 percent security due in November 2018 tumbled 1 2/32, or $10.63 per $1,000 face amount, to 107 22/32. Thirty-year bond yields surged 13 basis points to 3.62 percent.
Treasuries extended losses after a report showed more Americans signed contracts to buy previously owned homes in December for the first time in four months. The index of pending home resales climbed 6.3 percent to 87.7, the first increase since August, from a revised 82.5 in November, the National Association of Realtors said today in Washington.
‘Worst-Case Scenario’
The Federal Reserve extended its emergency-lending programs and foreign currency-swap lines by six months through Oct. 30, citing “continuing substantial strains in many financial markets.” The central bank’s decision applies to five emergency-lending programs that provide funds or Treasury securities to securities brokers, money-market funds and companies that issue commercial paper, the Fed said today in Washington.
The U.S. is increasing its debt sales to finance a growing budget deficit and programs to spur the economy. Obama said yesterday lawmakers shouldn’t let “very modest differences” over tax cuts and spending stand in the way of enacting a stimulus plan that may cost almost $900 billion.
“Obama’s fiscal program seems to be increasing by the minute, and the markets are expecting the worst-case scenario in terms of issuance,” said
Orlando Green, a fixed-income strategist in London at Calyon, Credit Agricole SA’s investment- banking arm. “It’s going to be tough to digest all that issuance, and it’s tenuous for the Treasury market.”
Next Week’s Sales
Ten-year
yields, which touched a record low of 2.04 percent on Dec. 18, averaged 4.56 percent this decade. They will trade at 2.5 percent by the end of March, Green said.
The government will probably say tomorrow that it plans to sell $32 billion in three-year notes, $22 billion in 10-year debt and $15 billion in 30-year bonds next week, according to Wrightson. The company, based in Jersey City, New Jersey, specializes in government finance.
The Treasury said yesterday it will borrow $493 billion this quarter, 34 percent more than it initially projected.
‘$2 Trillion Deficit’
“Easily in fiscal year 2009 it’s not out of the realm of possibility to have a $2 trillion deficit,” said
Mary Ann Hurley, vice president of fixed-income trading in Seattle at D.A. Davidson & Co. “That’s a huge number, and it has to be financed by debt issuance and the taxpayer.”
Treasuries dropped 3.1 percent in January, the biggest monthly decline in almost five years, according to Merrill Lynch & Co.’s U.S. Treasury Master index. Corporate bonds returned 1.2 percent, another Merrill index showed, as credit markets that froze last year attracted investors.
The difference between the yields on 10-year and twp-year notes widened by nine basis points to 1.92 percentage points, just above the 100-day moving average of 1.90 percentage points. The so-called yield curve was 1.25 percentage points on Dec. 26.
Yields suggest credit markets are reviving after freezing last year, though at a slower pace than in the final months of 2008.
Rates on three-month Treasury bills rose seven basis points to 0.31 percent, the highest since it was 0.39 percent Nov. 12, when Congress was debating the passage of an automaker bailout bill amid fears the industry would collapse.
TED Spread
The
TED spread, which measures the difference between what banks and the U.S. government pay for three-month loans, was at 92 basis points today, the lowest since June. It was 464 basis points in October, after the collapse of Lehman Brothers Holdings Inc. in the previous month.
The London interbank offered rate, or Libor, for three- month dollar loans, was little changed at 1.23 percent. It was as low as 1.08 percent on Jan. 14, versus an average of 3.72 percent for the past five years.
The Fed’s decision to keep its target rate near zero hasn’t succeeded in reducing consumer lending rates to levels from before the credit-market rout. The
difference between 30-year mortgage rates and 10-year Treasury yields is about 2.26 percentage points, up from 1.55 percentage points five years ago.
“The gap between zero and the appropriate fed funds rate is considerable -- it should be around minus 6 percent,”
Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. said today at a conference in London. “The Fed will move to purchase Treasuries before too long. They are going to try to support private-asset markets for the next couple of years.”
The central bank may buy Treasuries when 10-year yields approach a range of 3 percent to 3.25 percent and when 30-year bond yields near 3.75 percent to 4 percent, according to
David Ader, head of U.S. interest-rate strategy at Greenwich, Connecticut-based RBS Greenwich Capital Markets, one of 17 primary dealers that trade with the Fed.
State tranquilli che tutta la spazzatura che c'è in giro, i grillini la raccolgono 
