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Treasuries Drop as European Debt Concern Eases After Portugal's Offering
Treasuries fell as concern eased that Europe’s sovereign-debt crisis will undermine the global economic recovery, buoying higher-yielding assets.
U.S. bonds dropped as Portugal’s sale of debt maturing in 2021 attracted higher demand compared with a previous offering. Ten-year Treasuries pared losses as the $21 billion auction of the securities drew the highest level of participation in a year from a group including foreign central banks. The Federal Reserve said the economy maintained its expansion while showing “widespread signs” of a deceleration.
“The euro-zone story is old news and less scary today, so we are seeing the risk trade put back on,” said Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Investors are still using dips in prices to buy Treasuries as there are still loads of uncertainty in the economy.”
The 10-year note yield rose 5 basis points, or 0.05 percentage point, to 2.65 percent at 4:01 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 dropped 14/32, or $4.38 per $1,000 face amount, to 99 25/32. The yield earlier advanced 8 basis points to 2.68 percent.
The two-year note yield increased 3 basis points to 0.52 percent after falling last month to a record low 0.4542 percent. The 30-year bond yield advanced 6 basis points to 3.72 percent.
Stocks Advance
The Standard & Poor’s 500 Index pared its gains, climbing 0.7 percent after earlier rallying 1.1 percent. The Stoxx Europe 600 Index advanced 1 percent. Crude oil for October delivery climbed 0.6 percent to $74.55 a barrel.
The Fed said in its Beige Book report that 5 of its 12 regional banks reported “economic growth at a moderate pace” and 2 pointed to “positive developments or net improvements.” The remaining 5 said conditions were mixed or decelerating.
“The Beige Book depicts mixed economic activity in an uneven recovery that lost some momentum in recent months,” wrote Ward McCarthy, chief financial economist in New York at Jefferies Group Inc., in a research note to clients. “The economy continues to grow, with negligible inflation pressures.” The firm is one of the 18 primary dealers obligated to participate in U.S. debt auctions.
Treasuries rose on Aug. 10, when the central bank said at the conclusion of its policy meeting that it would keep its bond holdings level by resuming the purchase of U.S. debt to support a recovery it described as weaker than earlier anticipated.
Slowing U.S. Growth
U.S. economic growth slowed in the second quarter, the Commerce Department reported Aug. 27. Gross domestic product increased at a 1.6 percent annual rate in April through June, compared with a 2.4 percent pace projected earlier. The economy expanded at a 3.7 percent annual rate in the first quarter.
At today’s 10-year Treasury note auction, the securities drew a yield of 2.670 percent, the lowest since January 2009. The average forecast in a Bloomberg News survey of 8 primary dealers was 2.685 percent.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.21, compared with an average of 3.06 for the previous 10 sales.
Indirect bidders, an investor class that includes foreign central banks, purchased 54.7 percent of the 10-year notes, the highest share since September 2009. Direct bidders, non-primary- dealer investors who place their bids directly with the Treasury, purchased 6.9 percent of the notes, compared with an average of 13.6 percent for the past 10 sales.
‘Auction Concession’
“Auction concession and stocks being up have weighed on Treasuries,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, a primary dealer. “The auction was very strong. We’re reaching yields where buyers will want back in.”
The auction was the second of three note and bond offerings this week totaling $67 billion, the smallest total for 3-, 10- and 30-year securities since July 2009.
Treasuries rallied yesterday after the government’s $33 billion auction of three-year notes drew a record low yield of 0.79 percent. Indirect bidders purchased 42.4 percent of the securities, the biggest share since June. The government will sell $13 billion of 30-year bonds tomorrow.
The extra yield that investors demand to hold Portuguese 10-year government bonds instead of benchmark German bunds fell from the highest on record after today’s sale of debt by the Iberian nation. A sale of Poland’s five-year bonds attracted the biggest demand since 2008 after the government pledged to reduce its deficit.
European central banks bought Greek, Irish and Portuguese bonds, according to a trader involved in the transactions, as the securities’ premiums to German debt surged for a third day.
Today’s purchases were for about 10 million euros ($12.7 million) each and included debt maturing in 5 and 10 years, the trader said under condition of anonymity, because the transactions are confidential. A European Central Bank press officer declined to comment when contacted by phone.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net
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