Treasuries Snap Six-Day Decline After S&P Lowers Portugal's Credit Rating
Treasuries snapped a six-day decline after Standard & Poor’s cut Portugal’s debt ranking and European leaders prepared to gather for a second day to address the region’s debt crisis.
Demand for the safety of debt revived following a report yesterday that showed U.S. durable-goods orders fell and as economists said figures today will show consumer confidence declined. Investor appetite for government securities has fluctuated this week as Japan worked to avert a nuclear meltdown and allied forces bombed Libya.
“The flight-to-quality move will continue for a while and help Treasuries,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $43.2 billion and is a unit of the nation’s second-largest bank. “Japan will have a negative effect on the world economy.”
Ten-year yields were little changed at 3.41 percent as of 6:49 a.m. in London, according to Bloomberg Bond Trader. The 3.625 percent note maturing in February 2021 fell 1/32, or 31 cents per $1,000 face amount, to 101 25/32.
Treasuries have returned 0.2 percent this month, rebounding from a 0.1 percent slide in February, based on Bank of America Merrill Lynch data. For this week, they are down 0.5 percent as of yesterday, the figures show.
Volatility in the Treasury market dwindled this week, Merrill Lynch’s Move index shows. The gauge dropped to 90.1 yesterday, the lowest level since November, from 103.7 a week earlier. The index measures price swings in Treasuries based on over-the-counter options maturing in two to 30 years.
A bailout for Portugal may total 70 billion euros ($99 billion), two European officials with direct knowledge of the matter said. S&P lowered Portugal’s sovereign ranking by two levels to BBB from A-, after Fitch Ratings cut its assessment of the nation yesterday.
European Union leaders yesterday reduced the startup capital for a planned euro emergency aid fund.
Orders for U.S. durable goods dropped 0.9 percent in February, after a 3.6 percent gain the prior month, the Commerce Department said yesterday.
The Thomson Reuters/University of Michigan index of consumer sentiment decreased to 68 in March from 77.5 in February, based on a survey of economists by Bloomberg News. The preliminary reading for this month was 68.2.
Treasuries still headed for a weekly loss, pushing 10-year yields up 13 basis points, as stocks gained.
The MSCI All Country World Index of shares advanced for six days through yesterday, climbing to the most in two weeks. The index was little changed today.
Toyota Motor Corp. said it plans to resume production of some models in Japan, after the earthquake and tsunami idled plants for two weeks. U.S. Secretary of State Hillary Clinton said the NATO alliance will take responsibility for enforcing a no-fly zone over Libya.
Two-year yields climbed to a two-week high of 0.70 percent, prompting Barclays Capital Inc. to say they offer value.
This is “an attractive entry point,” Barclays’s analysts Ajay Rajadhyaksha and Dean Maki wrote in a report yesterday. “Front-end rates are likely to decline,” according to Barclays, one of the 20 primary dealers authorized to trade directly with the Federal Reserve.
The central bank is scheduled to buy $4 billion to $6 billion of government debt due from September 2012 to September 2013 today as part of its plan to support the expansion.
Treasury Inflation Protected Securities are outperforming conventional bonds as investors bet U.S. growth is fast enough to push up prices in the economy.
TIPS have returned 2.3 percent in 2011, versus 0.1 percent for Treasuries that don’t carry inflation protection, according to Bank of America Merrill Lynch indexes.
The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices over the life of the debt, has widened to 2.48 percentage points from 1.84 percentage point six months ago.
Demand for inflation-protected notes increased at an auction yesterday.
The 10-year TIPS drew a yield of 0.92 percent, compared with the average forecast of 0.981 percent in a Bloomberg survey of 9 of the 20 primary dealers, those companies that are obliged to participate in U.S. government auctions.
Investors bid for 2.97 times the amount of debt, the highest level since April 2010.
The 10-year yield will advance to 3.92 percent by year-end, according to a Bloomberg survey of finance companies with the most recent forecasts given the heaviest weightings.
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