Treasuries Advance on Bets Yield Gain Will Spur Auction Demand
http://www.bloomberg.com/apps/news?pid=20601009&sid=a8iToqtLTFNM&refer=bond#
By Dakin Campbell and Matthew Brown
Feb. 10 (Bloomberg) -- Treasuries rose on speculation yields near the highest level since November and the deepening U.S. recession will stoke investor appetite at today’s record $32 billion three-year note sale.
Bonds advanced as U.S. stock futures and most equities in Europe and Asia declined. Federal Reserve Chairman
Ben S. Bernanke may tell Congress today the central bank is prepared to purchase U.S. debt to cut long-term interest rates. Treasury Secretary
Timothy Geithner, who will unveil the administration’s financial-recovery plan today, said the U.S. financial system is badly damaged and needs more government help to avoid a collapse.
“We’ve had a pretty decent selloff the last couple of weeks, and I think we finally got to levels where people came in and put some money to work,” said
Jeffry Feigenwinter, head of Treasury trading at BNP Paribas Securities Corp. in New York, one of the 17 primary dealers that trade with the Fed. “All eyes will be on Geithner’s plan.”
The
yield on the 10-year note dropped eight basis points, or 0.08 percentage point, to 2.91 percent at 9:17 a.m. in New York, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 increased 23/32, or $7.19 per $1,000 face amount, to 107 1/8.
The benchmark note’s yield exceeded 3 percent yesterday for the first time since Nov. 28 after falling to a record low of 2.04 percent on Dec. 18.
Futures on the Standard & Poor’s 500 Index fell 1 percent.
Three-Year Auction
“Bernanke will make sure the market is well aware that they stand ready to buy Treasuries,” said
David Keeble, head of fixed-income research at Calyon, the investment-banking unit of Credit Agricole SA. “We were getting a little bit too concerned about the supply that’s coming up.”
The U.S. plans to sell $32 billion of three-year notes today, followed by $21 billion of 10-year notes tomorrow and $14 billion of 30-year bonds Feb. 12, in the Treasury’s biggest weekly sale.
Investors bid for 2.21 times the amount of debt on offer at the prior three-year note sale on Jan. 7. The average for the past 10 auctions is 2.4. Three-year note yields fell four basis points to 1.42 percent today, compared with the high yield of 1.2 percent at last month’s sale.
Geithner, who is scheduled to outline the bank-bailout plan at 11 a.m., said in prepared remarks the “financial system is working against recovery, and that’s the dangerous dynamic we need to change.” The package will include a round of injections of taxpayer funds into banks, an expanded Fed-led effort to spur consumer and small-business loans and an initiative to deal with the toxic assets clogging banks’ balance sheets.
‘Opportunistic’ Purchases
Fed officials have yet to resolve an internal debate over whether to purchase long-term Treasuries, according to people familiar with the deliberations. Bernanke first talked about the option of buying Treasuries on Dec. 1. The central bank will start buying if 10-year yields rise to between 3.25 percent and 3.5 percent, according to Calyon’s Keeble.
Foreign investors were “opportunistically making purchases” of Treasuries at the expense of other asset classes, according to
Dan Mulholland, a Treasury trader and strategist in New York at RBC Capital Markets, the investment-banking arm of Canada’s biggest bank.
Central banks and other overseas investors own more than 53 percent of outstanding U.S. public debt, up from 34 percent in 2000, Treasury data show.
New York Lottery
Treasuries lost 3.6 percent this year, their worst start to a year since 1980, according to Merrill Lynch & Co.’s Treasury Master Index data. Yields climbed on longer-maturity
debt in five of the past six weeks as bond prices fell amid concern that the Fed won’t buy U.S. debt to keep yields low while the government increases borrowing.
Investors sold Treasuries this year as credit markets began to thaw, reducing the need for the haven of government debt. Three-month Treasury bill rates climbed to 0.32 percent today after plunging to minus 0.04 percent on Dec. 4.
The New York Lottery is proposing moving its $1.3 billion prize fund out of the safety of Treasuries and into investments such as stocks, corporate bonds,
real estate and hedge funds. New York would be the first
state lottery among the 20 largest to shift to pension fund-style investments from U.S. debt, according to annual reports.
The difference between what banks and the Treasury pay to borrow for three months, the so-called
TED spread, narrowed to 91 basis points from 464 basis points in October. The gap averaged 27 basis points from 2002 through 2006, before the credit crisis began in August 2007.
Mortgage Rates
Average 30-year fixed mortgage
rates rose to 5.25 percent in the seven days ended Feb. 5 from 4.96 percent three weeks earlier, according to loan finance company Freddie Mac.
Rates are about 226 basis points higher than 10-year Treasury yields, widening from 162 basis points five years ago.
Investors are adding to inflation bets as President
Barack Obama works to push his economic stimulus plan through Congress.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or
TIPS, which reflects the outlook among traders for consumer prices, was 133 basis points, near the widest since October.