U.S. 30-Year Yields Decrease to Almost 4-Week Low on Austerity Prospects
Treasuries rose, pushing the 30- year bond yield to the lowest level in almost four weeks, on speculation any agreement in Congress to curb the nation’s budget deficit may impede economic growth.
Ten-year yields reached a three-week low as Greek bond yields reached euro-era records amid growing speculation the country will need to restructure its debt. Treasury Secretary Timothy F. Geithner said he’s confident U.S. political leaders will bridge differences on spending. Standard & Poor’s yesterday lowered the U.S. credit-rating outlook, citing fiscal pressures.
“People are thinking about the potential for austerity, the impact on growth and the possibility of weaker-than- previously-expected growth numbers in the second half of the year,” said Dan Mulholland, a Treasury trader in New York at Royal Bank of Canada, one of 20 primary dealers that trade with the Federal Reserve.
Thirty-year bond yields decreased three basis points, or 0.03 percentage point, to 4.43 percent at 5:01 p.m. in New York, according to Bloomberg Bond Trader prices. They touched 4.42 percent, the lowest level since March 23, after rising to as high as 4.49 percent. The price of the 4.75 percent security maturing in February 2041 gained 14/32, or $4.38 per $1,000 face amount, to 105 1/4.
Ten-year yields fell one basis point to 3.36 percent. They touched 3.34 percent, the lowest since March 24, after earlier rising to 3.41 percent.
Treasuries fell earlier as stocks gained after U.S. housing starts increased 7.2 percent in March, Commerce Department data showed. The Standard & Poor’s 500 Index ended the day up 0.6 percent after declining 0.1 percent earlier.
Fed Purchase
U.S. debt has returned 0.65 percent this month, after losing 0.14 percent in the first quarter, according to Bank of America Merrill Lynch indexes. They gained 5.9 percent in 2010.
Treasury yields have fallen on speculation government budget cuts will slow the economy and encourage the central bank to avoid raising borrowing costs, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co.
“Fiscal austerity in the short term damps growth,” El- Erian said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “The market is pricing in what policy makers are going to do. The more fiscal austerity you get, the more likely the Fed will stay on hold.”
The central bank has kept the benchmark interest rate at zero to 0.25 percent since December 2008 to support the economy.
‘Wake-Up Call’
“People are viewing the outlook change by S&P as a wake-up call,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “You can’t play political games when it comes to the strength of the economy. It’s too fragile.”
Treasuries also rose as Greece’s fiscal crisis pushed yields on its two-year notes up to a record 20.7 percent today. German Finance Minister Wolfgang Schaeuble’s comments on April 14 that Greece may need to restructure its debt sent bonds tumbling in Europe’s debt-strapped nations.
“The market is benefiting more from a safety bid because of what’s going on in Europe,” said Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-based brokerage firm. “It’s the European peripherals.”
The Fed bought $6.68 billion of Treasuries maturing from January 2014 to February 2015 as part of its program to acquire $600 billion of U.S. debt through June to spur economic growth. It will purchase $1 billion to $2 billion of Treasury Inflation Protected Securities tomorrow maturing from April 2013 to February 2041.
Still Attractive
U.S. two-year notes rose earlier as Japanese Finance Minister Yoshihiko Noda said in Tokyo U.S. debt remains “attractive” even after S&P lowered the country’s credit outlook. The rating company, citing rising U.S. budget deficits and debt, said yesterday there’s “a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013.”
“Equities aren’t doing well today, and people don’t want to make big moves given the shortened week, so Treasuries have remained bid,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “The market is more worried about equities than Treasuries after the S&P announcement.”
The Securities Industry and Financial Markets Association recommends that trading in U.S., U.K. and Japanese financial markets cease at 2 p.m. New York time on April 21 and remain closed the following day for the Easter holiday weekend.
Volume Slides
About $241 billion of Treasuries were traded today as of 5:01 p.m., the least since April 11, according to Icap Plc, the world’s largest interdealer broker. About $347 billion changed hands yesterday. The full-day average this year is $330 billion.
Geithner said he “absolutely” didn’t have to reassure overseas buyers of U.S. debt after S&P’s statement yesterday. President Barack Obama began a tour promoting his proposal to cut long-term budget deficits.
“We have an opportunity now over the next two months to make some real progress,” Geithner said in an interview on Bloomberg Television today. “What we agree on is putting in place strong targets for savings, deficit reduction over a specific time frame with enforceable limits,” he said.
A gauge of inflation expectations that the Fed uses to help determine monetary policy, the five-year, five-year forward break-even rate, was at 3.13 percentage points, compared with 3.28 percentage points on Dec. 15, a 10-month high. The average for the past five years is 2.78 percentage points.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net
To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net
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