Treasuries rose, pushing benchmark yields to a one-week low, as the threat of a Greek default raised demand for the relative safety of U.S. government securities.
Ten-year notes advanced after European policy makers raised pressure on Greece to return to the negotiating table and make further concessions to unlock financial assistance. Lawmakers in Germany, the biggest contributor to Greek aid, said the country is at risk of dropping out of the euro. Treasuries extended gains as two reports showed U.S. factory production unexpectedly declined.
“The primary influence was the breakdown of the Greek debt negotiation, and as that development made its way through the market, yields moved lower,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
Benchmark Treasury 10-year yields fell four basis points, or 0.04 percentage point, to 2.36 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The yield dropped as low as 2.31 percent, the lowest since June 4. The 2.125 percent note due May 2025 rose 10/32, or $3.13 per $1,000 face amount, to 97 31/32.
The yield on German 10-year bunds, the euro region’s benchmark sovereign securities, fell one basis point to 0.83 percent, after dropping 15 basis points in the previous two days.
“It’s risk off and back into the relative safety of Treasuries, at least in the short term,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 22 primary dealers that trade with the Federal Reserve. “They were trusting in a deal being done. That trust is misplaced,” he said referring to the Greece negotiations.
A 3.5 billion-euro ($3.9 billion) Greek government bond held by the European Central Bank matures on July 20 and a failure to repay it may cause the central bank to cut off Greek banks’ access to emergency funding.
Greece’s creditors want the nation to raise money through pension cuts and taxes. The government says the demands are economically and politically unacceptable, boosting concern the nation will have to exit the euro, in what’s become known as a Grexit, if it can’t get new funding.
“A Grexit must be factored in if the Greek government doesn’t do what it’s long been called upon to do,” Michael Grosse-Broemer, a member of Chancellor Angela Merkel’s Christian Democratic-led bloc, said in a ZDF television interview on Sunday.
Euro-area finance ministers are scheduled to meet in Luxembourg in June 18 to discuss Greece’s debt.
Treasuries have still lost investors 1.2 percent this month through June 12, according to Bloomberg World Bond Indexes. They are down 0.5 percent this year amid speculation the Fed is moving toward raising interest rates as the U.S. economy improves. The central bank’s next interest-rate decision is on June 17.
“There’s nervousness about Greece and any weak numbers” in the U.S., said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “It’s a very sensitive market now going into the Fed.”
Treasuries were supported as factory production declined by 0.2 percent last month, figures from the Fed in Washington showed Monday. Total industrial production, which also includes mines and utilities, also dropped 0.2 percent.
A separate report Monday showed the New York Fed’s Empire State factory index fell to negative 1.98, compared with an estimate of six among economists surveyed by Bloomberg.
“We’ve seen strength in our economy and these are the first set of weak numbers we’re seeing,” Cantor’s Edmonds said. “That’s slightly troubling.”