Treasuries fell, pushing 30-year bond yields to a three-month high, as Greece’s government reached a deal on austerity measures required for a 130 billion-euro ($173 billion) financing package, damping haven demand.
U.S. debt erased earlier gains as the Greek accord was announced via an e-mailed statement from the Greek Prime Minister’s press office. Treasuries remained lower after a report showed initial jobless claims unexpectedly fell last week before an auction of $16 billion of 30-year bonds today.
“The market’s taking a beating on the news that a deal has supposedly been reached in Greece,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of 21 firms that trade Treasuries with the Federal Reserve. “The market’s expectation was that this deal was going to be reached and it’s putting pressure on yields right now. We still have the auction today.”
U.S. 10-year yields rose two basis points, or 0.02 percentage point, to 2.04 percent at 11:41 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 fell 6/32, or $1.88 per $1,000 face amount, to 99 20/32.
Thirty-year bond yields rose as much as five basis points to 3.20 percent, the most since Oct. 31.
Declines in Treasuries were limited as the Fed has kept borrowing costs at almost zero since 2008, and said last month that economic conditions may warrant “exceptionally low levels” for rates through at least late 2014 to boost the economy and put more Americans back to work.
“It’s the same story that’s been holding us in forever: there will be buyers on dips,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “It’s hard for Treasuries to go straight down. There are too many things that are holding them up, and the Fed is one of the big ones. Their projection they’ll hold rates low until 2014 has given people the sense that they can buy these levels and be comfortable.”
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said low interest rates and inflation should dissuade investors from buying bonds and other holdings tied to currencies.
“They are among the most dangerous of assets,” Buffett said in an adaptation of his annual letter to shareholders that appeared today on the website of Fortune magazine. “Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal.”
Buffett on Bonds
Berkshire still holds bonds, primarily Treasuries, for liquidity, and has a preference to invest in companies by buying them outright or acquiring stock, Buffett said.
A formal offer for the Greek debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due. Greece’s Parliament may be called to vote on the terms of the writedown on Feb. 12, state-runs Athens News Agency reported yesterday, without saying how it got the information.
“The news out of Greece is positive, but there are many hurdles to get over before the news is anywhere close to being behind us,” said Michael Pond, co-head of interest-rate strategy in New York at Barclays plc, a primary dealer that is required to bid at Treasury auctions.
Applications for jobless benefits decreased 15,000 in the week ended Feb. 4 to 358,000, Labor Department figures showed today. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg News survey. The four-week moving average, a less-volatile measure of claims, declined to 366,250, the lowest since April 26, 2008.
Federal Reserve Chairman Ben S. Bernanke said Feb. 7 the 8.3 percent rate of unemployment in January understates weakness in the U.S. labor market.
“It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work,” Bernanke said that day in response to questions at a hearing before the Senate Budget Committee in Washington. “There are also a lot of people who are either out of the labor force because they don’t think they can find work” or in part-time jobs.
The 30-year U.S. bonds that investors will bid for today yielded 3.15 percent in pre-sale trading, versus the record low auction yield of 2.925 percent set in December.
At the previous sale in January, traders submitted offers to buy 2.6 times the amount of available debt, versus the average of 2.66 percent for the past 10 monthly auctions.
Indirect bidders, the group that includes foreign central banks, purchased 31.9 percent of the debt. Direct bidders, non-primary dealers buying for their own accounts, bought 7.2 percent, the least in 10 months.
Treasury announced plans to sell $9 billion of 30-year Treasury Inflation Protected Securities on Feb. 16. TIPS are intended to provide investors with a hedge against inflation. The securities rise or fall in value with movements in the government’s consumer price index, with a three-month lag.
The U.S. may begin selling floating-rate notes for the first time in the second half of the year to help sustain demand for Treasuries while funding record budget deficits, according to Wall Street bond dealers.
Issuance may total about $10 billion a month, based on forecasts from nine of the 21 primary dealers that act as counterparties for the Federal Reserve. The Treasury Borrowing Advisory Committee, the group of bond dealers and investors that meets quarterly with the Treasury to share insights on the debt market, unanimously endorsed the sales, according to minutes of the group’s meeting released Feb. 1. A Treasury official who briefed reporters on condition of not being named said the next day that a decision on floating-rate notes could be made as soon as May.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.
The central bank bought $4.95 billion of securities due from June 2018 to November 2019 today under the plan, according to the New York Fed’s website.