Treasuries Hold Gains Before Trade Data, 30-Year Auction

Treasuries Hold Gains Before Trade Data, 30-Year Debt Auction
The U.S. trade deficit widened to $44 billion in August from $42 billion in July, according to the median forecast of 73 economists in a Bloomberg News survey before the Commerce Department reports the number today. Photographer: Peter Foley/Bloomberg

Treasury 30-year bonds pared losses before a $13 billion auction of the debt, underscoring the infinite appeal of the world’s safest securities.

Yields had risen as global stocks climbed for the first time this week and commodities rallied as investors sought higher returns after U.S. jobless claims slid to a four-year low and Italy’s bond yields fell after a debt sale.

“Buying continues to materialize on backups and stocks have come off their highs,” said Sean Murphy, a trader at Societe General in New York, one of the 21 primary dealers that are required to bid at government debt auctions. “There is still a lot of uncertainty in the market domestically and globally and that keeps a ceiling on yields.”

The 30-year bond yield was little changed at 2.88 percent at 12:37 p.m. New York time, after rising to 2.93 percent. Ten-year note yields added one basis point to 1.69 percent after declining to 1.67 percent, the least since Oct. 5.

The Standard & Poor’s 500 Index added 0.4 percent, snapping four days of losses.

“The key factor is the bond auction,” said Thomas di Galoma, a managing director at Navigate Advisors LLC, a brokerage for institutional investors in Stamford, Connecticut.

The 30-year bond scheduled for sale today yielded 2.88 percent in pre-auction trading, compared with 2.896 percent at the last offering, on Sept. 13. The record auction low of 2.58 percent was set in July. Investors bid for 2.68 times the amount of the securities offered last month. Thirty-year yields have averaged 3.96 percent in the past five years.

Economic Indicators

The U.S. sold $21 billion in 10-year debt yesterday and $32 billion in three-year notes the previous day at record demand.

Thirty-year U.S. debt has gained 2.5 percent this year, according to Bank of America Merrill Lynch indexes, underperforming the 3.9 percent gain in the 7-to-10 year Treasury market. The securities returned 35.5 percent in 2011, more than double the 15 percent gain by middle-term Treasuries.

There are some signs of improvement in the U.S. economy, as President Barack Obama and challenger Mitt Romney prepare to face off in the Nov. 6 election.

Applications for jobless benefits dropped 30,000 to 339,000 in the week ended Oct. 6, the fewest since February 2008, Labor Department figures showed today. The median forecast of 49 economists in a Bloomberg News survey was for a rise in initial jobless claims to 370,000 from 367,000 the previous week.

The jobless number “raises the important question of the new seasonal tendency for claims to decline in the fourth quarter,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “Even if this gets worked out to everyone’s satisfaction, this is going to be a theme that the market is going to have to deal with.”

‘European Problems’

U.S. unemployment declined to 7.8 percent in September from 8.1 percent the month before, the Labor Department reported Oct. 5. Manufacturing unexpectedly expanded in September, an industry report showed Oct. 1.

Treasuries advanced earlier as Spain’s credit rating was lowered two levels to BBB-, one above junk, by Standard & Poor’s. The New York-based company cited mounting economic and political risks as the government considers a second bailout, it said in a statement yesterday.

“We’re trying to figure out whether Spain is going to take a bailout or not, and whether there’s any possibility that that stokes another round of European problems,” Tom Graff, who manages $3.6 billion of fixed-income assets at Brown Advisory Inc. in Baltimore. “I really think the answer is no. I think Europe has gone way too far down the road of compromise to backtrack now.”

Basel Rules

EU lawmakers and officials, facing a Jan. 1 international deadline for incorporating the new Basel rules, held the latest in a series of meetings today on how the bloc should implement the measures, said three people familiar with the talks who asked not to be identified because the negotiations are private.

The Rome-based Treasury sold 3.75 billion euros ($4.8 billion) of its benchmark three-year bond to yield 2.86 percent, more than the 2.75 percent at the last auction of the same securities on Sept. 13. Investors bid for 1.67 times the amount offered, up from 1.49 times last month, indicating investors are still willing to invest in the country.

Italy’s current three-year bond yield fell 12 basis points to 2.88 percent.

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