Treasuries Climb on Greece Default Concern; Two-Year Yields Drop to Record
Treasuries Gain on Greece Crisis
Kostas Tsironis/Bloomberg
A pedestrian passes a newspaper kiosk displaying headlines about the economic crisis in central Athens on Sept. 19, 2011.
A pedestrian passes a newspaper kiosk displaying headlines about the economic crisis in central Athens on Sept. 19, 2011. Photographer: Kostas Tsironis/Bloomberg
Treasuries rose, pushing two-year note yields to a record low, as concern Greece is heading for default spurred demand for the safest assets and sapped stocks worldwide.
Yields on 10-year notes dropped the most in two weeks as Greek Prime Minister George Papandreou canceled a U.S. visit, saying he needs to be home as he works to receive an installment of aid. Longer-term debt yields also decreased on speculation the Federal Reserve will announce plans this week to increase holdings of the securities to keep borrowing costs down.
“Treasuries are rallying as equities around the world have plummeted amid ongoing issues in Greece,” said Christopher Sullivan, who oversees $1.7 billion as chief investment officer at United Nations Federal Credit Union in New York. “The crisis will probably linger for a considerable period, which means continued lower rates.”
Yields on 10-year notes fell 10 basis points, or 0.10 percentage point, to 1.95 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities due in August 2021 rose 27/32, or $8.44 per $1,000 face amount, to 101 17/32.
Benchmark 10-year yields decreased as much as 12 basis points, the most on an intraday basis since Sept. 2, after touching a record low 1.8770 percent last week. A rally of almost two points in 30-year bonds pushed yields down 10 basis points to 3.22 percent. Two-year yields slid one basis point to 0.16 percent after touching a record low 0.1451 percent.
Fed Speculation
“Policy makers are unable or unwilling to do anything,” said David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut, referring to European officials. “That is why people are buying two-year notes at 15 basis points even when they know the risk is we’re going to see the Fed in here selling them.”
Treasuries pared gains after the European Union and International Monetary Fund inspectors ended a teleconference this evening in Athens with Greece’s Finance Minister Evangelos Venizelos and other officials to judge whether the government is eligible for an aid payment due next month and set for a second rescue package approved by EU leaders on July 21.
The call was “productive and substantive,” the Finance Ministry said in an e-mailed statement. The talks will continue in another teleconference tomorrow evening, the statement said.
‘Alarming Part’
“The alarming part is that we have meeting after meeting and nothing gets resolved, so Treasuries are the natural safe haven,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “They are the least bad option. One should stress this is not a particular enthusiasm for Treasury yields at current levels.”
Venizelos dismissed on Sept. 17 talk of Greece’s declaring bankruptcy and said Papandreou canceled his planned week-long U.S. visit to be prepared to take quick decisions this week, when Parliament votes on the July 21 package, which also gave Europe’s rescue-fund expanded authority.
The Standard & Poor’s 500 Index declined for the first time in six days, sliding 1 percent. The Stoxx Europe 600 Index tumbled 2.3 percent. The euro dropped 0.8 percent to $1.3686.
Wall Street’s biggest bond traders are stockpiling Treasuries on speculation the Fed will buy longer-term debt to spur the faltering economy. The central bank’s policy makers will hold an expanded meeting over the next two days to consider their remaining policy tools.
Speculation on Fed
The 20 primary dealers, which trade directly with the Fed, held $15.1 billion of Treasury securities due in more than one year as of Sept. 7, up from a $75 billion bet against the debt on May 6, Fed data show.
The central bank acquired $830 million of Treasuries maturing from March 2013 to February 2014 as part of its policy of continuing to reinvest the proceeds of maturing assets on its balance sheet to cap borrowing costs.
Purchases of previously owned homes in the U.S. last month probably held close to the weakest level this year, economists said before a report this week.
Existing-home sales rose 1.7 percent to a 4.75 million annual rate from an eight-month low in July, according to the median projection of 59 economists in a Bloomberg News survey. The report from the National Association of Realtors is due to be released Sept. 21.
President Barack Obama called for $1.5 trillion in tax increases over the next decade to help trim the deficit, saying U.S. prosperity depends on paying down the federal debt.
Obama on Budget
In combination with cuts in spending, the president’s plan would reduce the long-term deficit by $3 trillion beyond the $1 trillion that was agreed to as part of a deal to raise the U.S. debt ceiling, Obama said at the White House. The additional taxes largely would fall on the wealthiest Americans.
Money managers are becoming more bearish on Treasuries, according to a survey by Ried Thunberg ICAP Inc., a New Jersey- based unit of the world’s largest interdealer broker.
The company’s gauge on the outlook for U.S. debt through Dec. 31 decreased to 44 for the week ended Sept. 16 from 48 the week before. A number less than 50 shows investors expect prices to fall.
The 10-year yield will increase to 2.96 percent by the end of September 2012, according to the average forecast in a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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