Treasuries Decline on Speculation G-20 Will Act on European Debt Crisis

Treasuries dropped, pushing yields on benchmark 10-year notes up from a record low, on speculation Group of 20 leaders will act to prevent the European sovereign- debt crisis from worsening.

Thirty-year bonds pared their biggest weekly gains in almost three years as global stock markets recovered. Investors have sought refuge in U.S. government debt on concern the global economy is on the brink of another recession. The Federal Reserve said Sept. 21 it would buy longer-term debt to lower borrowing costs because the economy faces significant risks.

“Treasuries are coming off some as equities are performing better and there has been no more bad news to speak of,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “There is constructive chatter out of Europe about a potential rate cut, but the flight-to- quality motivation in the market remains the dominant theme.”

Ten-year yields rose 12 basis points, or 0.12 percentage point, to 1.83 percent at 5:05 p.m. in New York, according to Bloomberg Bond Trader prices. It was the yields’ first increase in six days. They fell earlier to 1.6714 percent, the lowest level in Fed figures going back to 1953, and lost 21 basis points this week. The 2.125 percent notes due in August 2021 dropped 1 2/32, or $10.63 per $1,000 face amount, to 102 20/32.

The 30-year bond yield increased 10 basis points to 2.90 percent. It was down 41 basis points this week, the most since the midst of the global financial crisis in December 2008.

The Standard & Poor’s 500 Index rose as much as 1.1 percent, after losing 0.7 percent earlier.

G-20 Pledge

Group of 20 finance chiefs pledged to address rising risks to the global economy and pushed Europe to contain its sovereign debt crisis. Policy makers are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” they and central-bank governors said in a statement late yesterday in Washington.

The European Central Bank may also step up efforts to boost growth and ease financial-market tensions as early as next month, Governing Council members said.

Austria’s Ewald Nowotny and Belgium’s Luc Coene said in Washington that potential measures include the reintroduction of 12-month loans to banks. Asked if an interest-rate cut is warranted, Coene said while that wouldn’t help to bring down longer-term borrowing costs, “the ECB has never ruled out things beforehand.”

The ECB raised its main financing rate to 1.5 percent this year after keeping it at 1 percent since 2009 to support the region’s economy.

Greek Lenders

Greece committed to additional measures this week to secure the next payment in its 110 billion-euro ($148 billion) bailout and convince European lawmakers to pass its second bailout worth 159 billion euros. Eight Greek lenders had their credit ratings lowered today by Moody’s Investors Service on concern over their holdings of the nation’s government bonds.

The difference between two- and 10-year Treasury yields narrowed to 1.62 percentage points, the least on a closing basis since January 2009. The extra yield 30-year bonds offer over two-year notes narrowed to 2.6 percentage points yesterday, the lowest on a closing basis since March 2009.

“The G-20 countries pledging help eases the safety trade some on the margins, but until we really have a concrete plan in place for Greece we are going to maintain the same market that we have been in,” said Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “In this market, you just can’t be short Treasuries and you want to look to buy dips in prices.” A short position is a bet that a security will fall.

Return for Year

Treasuries have returned 9.8 percent this year, according to Bank of America Merrill Lynch Indexes. Ten-year notes have returned 18 percent, while 30-year bonds have returned 36 percent.

Bonds rallied after a two-day policy meeting that ended Sept 21 as the Federal Open Market Committee cited “significant downside risks” to the U.S. economy and announced it will buy securities due in six to 30 years through June while selling an equal amount of debt maturing in three years or less.

The central bank also announced a measure to support the mortgage market by reinvesting maturing housing debt into mortgage-backed securities instead of U.S. government debt.

The Senate rejected, 59-36, a House-passed stopgap measure to fund the government until Nov. 18 and provide $3.65 billion in aid to victims of Hurricane Irene and other natural disasters. Senate Democratic leaders opposed the Republican-led House bill’s spending cuts to offset the disaster aid and said it didn’t provide enough money to help affected communities.

Government Shutdown

The action escalates a fight that threatens a shutdown of U.S. government operations.

Next week, the government will sell $35 billion of two-year notes, the same amount of five-year debt and $29 billion of seven-year securities in separate offerings.

“Today there is a bit of natural resistance given how far we’ve come and how fast we got there,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 20 primary dealers that trade with the Federal Reserve. “The market won’t go for from these levels until the domestic and international stories play out one way or another. People are bracing themselves for a disaster scenario in Europe.”

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Treasuries Fall on Speculation G-20 Will Act

Louuisa Gouliamaki/AFP/Getty Images

Police stand guard as students and teachers march during a protest against austerity measures and education reform, in central Athens, on September 22, 2011.

Police stand guard as students and teachers march during a protest against austerity measures and education reform, in central Athens, on September 22, 2011. Photographer: Louuisa Gouliamaki/AFP/Getty Images