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Treasury Two-Year Yields Stay Near a Weekly Low Before Fed Bond Purchases
U.S. two-year Treasury yields were near the lowest in a week after the Organization for Economic Cooperation and Development said the global recovery is slower than projected.
The 10-year yield fell by as much as 4 basis points earlier as the Federal Reserve prepared to buy debt maturing in 2013 and 2014 today as part of its plans to purchase $18 billion of securities by the middle of this month to depress borrowing costs and prevent another recession. U.S. growth will slow to 1.2 percent in the next quarter from 2 percent, the Paris-based OECD said in a report today. European Central Bank Executive Board member Juergen Stark told the Financial Times Deutschland some German banks need more capital.
“It’s a combination of fears about a double-dip recession in the U.S. and renewed concern about the banking sector in the weaker countries in Europe,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “Added to this, we have the Fed being a buyer of Treasuries and that’s adding support.”
The yield on the two-year note was at 0.52 percent as of 6:48 a.m. in New York, according to BGCantor Market Data. The 0.375 percent security due August 2012 was priced at 99 23/32. The yield fell to 0.48 percent yesterday, matching the previous day’s low, which was the least since Sept. 1, according to Bloomberg generic prices.
Stress Tests
Policy makers may need to extend or bolster stimulus programs to support the global economy, the OECD said today. Data suggest Group of Seven nations could grow at an annualized rate of about 1.5 percent in the second half, below the 1.7 percent previously envisaged and the 3 percent rate of the first six months of the year, the organization said in a report.
Stark told members of Chancellor Angela Merkel’s Christian Democrat party that Germany’s Sparkasse savings banks, which were not included in recent European stress tests, and state- owned Landesbanks are particularly at risk, FTD reported. The euro fell as much as 0.4 percent against the dollar.
Treasuries have returned 8 percent this year after losing 3.7 percent in 2009, according to Bank of America Merrill Lynch indexes, as investors sought safer assets.
The 30-year yield increased 1 basis point to 3.75 percent before a sale of $13 billion worth of the securities today. The bonds being sold today yielded 3.75 percent in pre-auction trading, compared with the highest yield of 3.954 percent at the previous offering on Aug. 12.
Last Month’s Sale
Investors last month bid for 2.77 times the amount of debt on offer, versus 2.89 in July. Indirect bidders, the investor group that includes foreign central banks, bought 46 percent of the securities, versus 37.4 percent in July.
Today’s offering of 30-year bonds is the last of three auctions this week totaling $67 billion.
Yesterday’s auction of 10-year Treasury notes drew a yield of 2.67 percent, the lowest since January 2009.
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.
The auction was a reopening of securities that were originally sold on Aug. 11.
Gains in Treasuries were limited before a report that economists said will show fewer Americans applied for jobless benefits last week.
Initial jobless claims fell to 470,000 from 472,000 the prior period, according to a Bloomberg News survey before the report today. Treasuries slumped on Sept. 3 after Labor Department figures showed U.S. companies hired more workers than economists predicted last month.
Beige Book
The U.S. trade deficit probably narrowed in July as a slowing recovery prompted Americans to buy fewer goods from abroad, economists said before a government report today.
The gap between imports and exports decreased to $47 billion from $49.9 billion the prior month, according to the median of 73 estimates in a Bloomberg News survey.
“The labor market situation remains difficult,” Viola Stork, an economist at Helaba Landesbank Hessen-Thueringen in Frankfurt, wrote in a client note today. While a reduction in the U.S. deficit “will be favorable” for the economy, a “decline in imports and exports at the same time would point to generally weaker economic momentum,” Stork wrote.
The Federal Reserve said in its Beige Book report released yesterday that the economy maintained its expansion while showing “widespread signs” of a deceleration.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
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