Treasuries Decline as Surprise Swiss Interest-Rate Cut Curbs Safety Flows
Treasuries fell, pushing the two-year note yield up from a record low, after a surprise interest-rate cut by the Swiss central bank helped ease European financial sector debt concern.
Yields on 10-year notes and 30-year bonds climbed from nine-month lows as the Swiss National Bank lowered its target for three-month Libor to “as close to zero as possible” from 0.25 percent to curb the “massively overvalued” franc. The currency had touched a record high versus the euro on demand for a refuge. European stocks pared losses.
“The SNB move to weaken the franc acts to contain some of the risk-off flows that we’ve seen into the Swiss currency, and that’s helping to push Treasury yields up a little after a big drop recently,” said Morten Hassing Povlsen, senior rates analyst at Nordea Bank AB in Copenhagen. “A lot of European corporates and also the private sector have borrowed in Swiss francs, so it also helps to ease some of the concerns about financial sector debt.”
Yields on 10-year notes increased three basis points, or 0.03 percentage point, to 2.64 percent at 6:52 a.m. in New York, according to Bloomberg Bond Trader prices. The price of the 3.125 percent securities maturing in May 2021 dropped 1/4, or $2.50 per $1,000 face amount, to 104 1/8.
The 10-year note yields touched 2.57 percent, the lowest level since November. Two-year note yields gained one basis point to 0.33 percent after falling to a record 0.3081 percent.
Franc as Haven
The franc, considered a haven in times of turmoil, has surged 10 percent against the euro over the past two months as Europe’s debt crisis worsened, hurting Swiss exports and economic growth. The SNB joins the Federal Reserve and the Bank of Japan, which have also cut their benchmark rates to virtually zero in an effort to boost their economies.
The Zurich-based central bank said it will also expand banks’ sight deposits to 80 billion Swiss francs ($104 billion) from 30 billion francs and repurchase outstanding SNB bills, according to an e-mailed statement today.
“We’re just seeing a bit of a respite in the market after the storm created by the headlines on global growth fears,” said Mark Schofield, head of interest-rate strategy at Citigroup Inc. in London. “Growth will still pick up in the second half. Some of the concerns are petering out. The SNB liquidity injection has also taken a bit of the sting out of risk aversion created by the issues in Europe.”
Drop in Stocks
The Stoxx Europe 600 Index decreased 0.8 percent, paring an earlier 1.7 percent decline. Futures on the Standard & Poor’s 500 Index expiring in September added 0.6 percent, indicating the gauge of stocks is poised to rebound from its lowest level since December.
Bonds earlier rallied from Australia to Japan to Germany earlier today as signs of slowing global economic growth stoked demand for the relative safety of government debt.
U.S. consumer spending unexpectedly fell in June, and manufacturing almost stalled in July, reports showed this week. Manufacturing in the U.K., Russia and Australia also shrank, while the pace of factory output slowed in Europe and China, according to reports from the nations this week.
“Economic data from across the world hasn’t been very promising, and that’s sparked fears of a global slowdown,” said Elisabeth Afseth, a fixed-income analyst at Evolution Securities Ltd. in London. “Investors are also pushing their rate-hike expectations considerably further out. It’ll be hard for the 10-year Treasury yield to push lower than about 2.5 percent.”
U.S. Debt
The move to reduce the U.S. debt shifted to the makeup of the special congressional panel charged with finding further spending cuts and whether its 12 members can consider rewriting the tax code.
Republican leaders at the Capitol are pledging to appoint members who oppose tax increases. Their Democratic counterparts make clear they will name lawmakers who’ll fight to raise new revenue and protect entitlement benefits Republicans say should be targeted.
Under the debt-ceiling measure that President Barack Obama signed into law yesterday, House and Senate Democratic and Republican leaders have two weeks to decide on the three appointees each can make.
The panel must vote on its $1.5 trillion deficit-cutting plan by Nov. 23. Congress must then accept the recommendations by Dec. 23 or face the triggered round of automatic cuts worth $1.2 trillion.
To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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