U.S. November Producer Prices Fall 0.1%; Core Rate Rises 0.1%
Treasuries Yields Touch Almost Week Low on Cyprus Concern
Treasury 10-year note yields touched the lowest level in almost a week on concern an agreement to help Cyprus avoid a default may undermine long-term financial stability in the euro region.
The benchmark note erased losses after as a Cypriot lawmaker said his nation must consider leaving the euro. Cyprus agreed to shut its second-biggest bank, largely wiping out bondholders and raising concern the restructuring will pave the way for losses on deposits in other European nations. The U.S. will sell $35 billion in two-year notes tomorrow.
“There have been policy mistakes that have opened up a can of worms that have kept the bid for safety,” said Guy Haselmann, an interest-rate strategist at Bank of Nova Scotia in New York, one of 21 primary dealers that trade with the Federal Reserve. “If Europe doesn’t show the seamless ability to fix small problems like Cyprus, how are they going to be able to fix bigger problems if they come up?”
The 10-year yield was little changed at 1.92 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. It rose five basis points earlier to 1.97 percent, the highest since March 15, and fell to as low as 1.8938 percent. The yield reached 1.8905 percent March 19, the lowest since March 5. The 2 percent securities maturing in February 2023 gained 1/32, or 31 cents per $1,000 face amount, to 100 22/32.
Thirty-year bond yields were little changed at 3.15 percent after rising four basis points to 3.19 percent.
The Fed bought $1.46 billion of securities today due between February 2036 and February 2043 as part of its $85 billion in monthly bond purchases to support the economy by capping borrowing costs. Policy makers said last week the central bank will keep buying until there’s substantial improvement in the U.S. labor market.
“There is a lot of noise from Europe that is helping to keep the market bid, as well as a continually dovish Fed,” said Scott Graham, head of government bond-trading in Chicago at Bank of Montreal’s BMO Capital Markets unit, another primary dealer. “Eventually the economic data will rule the day, and we will drift higher in rates. As we get closer to a resolution, investors should sell strength in the Treasury market.”
U.S. consumer spending rose 0.6 percent last month, the most in five months, economists said before the government reports the data on March 29.
The accord between Cyprus and the so-called troika of international lenders -- the European Commission, European Central Bank and International Monetary Fund -- paved the way for 10 billion euros ($13 billion) of loans.
The agreement will see Cyprus Popular Bank Pcl, the nation’s second-biggest bank, wound down, with uninsured depositors and bondholders, including senior creditors, largely wiped out. Senior bondholders will also contribute to the recapitalization of Bank of Cyprus Plc, the biggest bank. The deal spares bank accounts below the insured limit of 100,000 euros, which an earlier plan would have taxed.
Until now, euro-region officials had left bank depositors and senior bondholders untouched as they tried to rescue the bloc’s struggling economies in a series of all-night summits over the past three years.
Dutch Finance Minister Jeroen Dijsselbloem, who heads the group of euro-area finance chiefs, said banks “should basically be able to save themselves, or at least restructure or recapitalize themselves as far as possible” before approaches with public money are considered.
Dijsselbloem said later in a statement that restructuring programs are “tailor-made to the situation of the country concerned, and no models or templates are used,” he said.
“Cyprus haircuts prove just one thing: without growth, highly indebted EU countries will eventually suffer a similar fate,” Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, wrote today in a Twitter post.
Nicholas Papadopoulos, a Cypriot lawmaker and chairman of the parliamentary finance committee, said in an interview in Nicosia on Bloomberg Television’s “The Pulse” with Ryan Chilcote that the accord will hurt confidence in the nation’s banking and political systems.
“We wish to stay in the euro zone, but leaving the euro zone now is a valid point that has to be explored, because we are going to enter into a very deep recession, high unemployment with no prospect of growth, and we need to examine if there are other ways to solve these hurdles,” Papadopoulos said.
Cyprus is the fifth euro country to seek international assistance since the 17-nation currency bloc’s debt crisis broke out in Greece three years ago.
Treasuries are still headed for a loss for March and for the first quarter even after gaining last week as a deadlock in Cyprus stoked demand for safety. U.S. government securities dropped 0.1 percent this month and 0.5 percent this year as of March 22, according to Bank of America Merrill Lynch indexes.
The Standard & Poor’s 500 Index gained 9.7 percent including reinvested dividends this year to the end of last week, buoyed as the U.S. jobless rate fell to a four-year low of 7.7 percent in February.
The U.S. will auction $99 billion in notes, including tomorrow’s sale. It will sell $35 billion of five-year securities March 27 and $29 billion of seven-years the next day.
Treasuries are set to close worldwide on March 29 for Good Friday, according to the New-York based Securities Industry and Financial Markets Association’s website.
To contact the editor responsible for this story: Dave Liedtka at email@example.com