Treasuries Tumble Amid Summit in Europe, Lack of Progress on Debt in U.S.
July 21 (Bloomberg) -- Jens Nordvig, a managing director of currency research at Nomura Holdings Inc., talks about the euro and the European Union's summit today on containing the sovereign-debt crisis. Nordvig speaks with Carol Massar and Sara Eisen on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Treasuries fell for a second day as European Union leaders redoubled efforts to end the region’s debt crisis, while U.S. officials reported no progress on raising the federal debt limit and cutting the budget deficit.
Benchmark 10-year note yields rose to the highest in more than a week as Standard & Poor’s reiterated it sees a 50 percent chance of downgrading the U.S. credit rating within three months. European leaders at a summit risked a temporary default to ease Greece’s debt burden and erected a firewall around Spain and Italy. The U.S. will sell $99 billion in notes next week.
“EU leaders are going in the right direction,” said William Larkin, a fixed-income money manager at Salem, Massachusetts-based Cabot Money Management, which oversees $500 million. “There was a lot of optimism in the market today. It’s probably going to be short-lived.”
Yields on benchmark 10-year notes climbed nine basis points, or 0.09 percentage point, to 3.01 percent at 5:03 p.m. in New York, according to Bloomberg Bond Trader prices. It touched 3.04 percent, the highest level since July 11. The 3.125 percent securities maturing in May 2021 dropped 23/32, or $7.19 per $1,000 face amount, to 100 30/32.
Thirty-year bond yields gained six basis points to 4.31 percent. Two-year yields rose two basis points to 0.4 percent and touched 0.41 percent, the highest since July 8.
The euro advanced to $1.4435, the highest in two weeks, and global stocks gained, pushing the S&P 500 Index (SPX) up 1.4 percent.
Rescue Fund
European leaders, after eight hours of talks in Brussels, empowered their 440-billion euro ($633 billion) rescue fund to buy debt across stressed euro nations. It can also aid troubled banks and offer credit-lines to repel speculators. Leaders pledged a 160 billion euro aid package for Greece, eased the terms of its existing loans and cajoled bondholders into footing part of the bill.
Jean-Claude Trichet, European Central Bank president, told reporters euro region members pledged enhancements to Greek collateral and to provide backing for it if needed.
Two European officials familiar with the talks said governments may guarantee any defaulted Greek debt offered as collateral at money market operations. That would enable Greek banks to keep tapping the ECB for emergency funds. The officials said the aim would be limit any credit event to a few days.
Treasuries slid as S&P reiterated its July 14 warning that there’s a one-in-two possibility it will cut the U.S. AAA rating if the government hasn’t agreed on a “credible solution” on the nation’s debt level, even if it raises the debt limit in time to avoid a potential default.
‘No Deal’
President Barack Obama’s spokesman and House Speaker John Boehner said there’s “no deal” on raising the U.S. debt limit as all sides said they still lack a consensus on spending cuts and tax revenue.
White House press secretary Jay Carney and Boehner responded to a New York Times story today that the two sides were close to a major agreement. Boehner, an Ohio Republican, said in a Twitter message reports of a deal were “false.”
“There is no progress to report,” Carney said at a briefing in Washington. He said the administration is “absolutely confident” an agreement to avert a default can be reached before an Aug. 2 deadline.
The administration signaled yesterday it may accept a short-term increase in the U.S. borrowing ceiling if an agreement on cutting the budget deficit is imminent, adding to speculation the limit will be raised.
‘Not Good’
“A temporary raise in the ceiling is not good,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 20 primary dealers that trade directly with the Federal Reserve. “With a temporary thing, all that means is we push the can down the road and we’re going to talk about it for the next three, four, five months.”
Treasury Secretary Timothy F. Geithner has said the U.S. will be unable to service its debt from Aug. 2. A bipartisan proposal from six senators for a $3.7 trillion debt reduction, revived this week and praised by Obama, faces resistance from House Republicans, who have continued to stress opposition to a debt compromise that includes more taxes.
The U.S. auctioned $13 billion in 10-year Treasury Inflation Protected Securities, or TIPS, drawing a yield of 0.639 percent. That compared with the average forecast of 0.673 percent in a Bloomberg News survey of nine primary dealers. Today’s rate was the lowest since the November sale of the securities yielded 0.409 percent, a record.
Indirect Bidders
Investors bid for 2.62 times the amount of debt offered, compared with 2.66 times in May, and an average of 2.83 for the past 10 auctions. Indirect bidders, a class of investors that includes foreign central banks, purchased 41.6 percent of the TIPS, compared with 40.7 percent at the May auction and an average of 43.2 percent at the past 10 offerings.
The Treasury said it will sell $99 billion of notes next week: $35 billion of two-year securities on July 26, the same amount of five-year debt on the following day and $29 billion of seven-year notes on July 28. The amounts are the same as at the last time the U.S. auctioned the maturities in June.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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