Treasuries Plunge by Most Since May as Progress Seen on Greece

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Treasuries fell by the most in six weeks as European officials saw signs that Greece and its creditors may have the basis for a deal to end their standoff over aid.

Longer-term Treasuries led losses amid a selloff in German bunds and other haven assets. European Commission President Jean-Claude Juncker said he thought there would be an agreement by the end of the week after meeting Monday with Greek Prime Minister Alexis Tsipras.

“They’re getting closer to some sort of deal,” said Thomas Simons, a government-debt economist with Jefferies Group LLC, one of 22 primary dealers that trade with the Federal Reserve. “Signs are continuing to point towards higher yields.”

Yields on benchmark 10-year Treasuries climbed the most since May 11, rising 11 basis points, or 0.11 percentage point, to 2.37 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. The 2.125 percent note due May 2025 fell 1 point, or $10.00 per $1,000 face amount, to 97 26/32.

Treasury declines steepened after a report showed previously owned U.S. homes sold in May at the fastest pace since November 2009. Yields also climbed as the U.S. prepares to sell $26 billion of two-year notes Tuesday, $35 billion of five-year securities on June 24 and $29 billion of seven-year debt on June 25.

Euro Intact

Tsipras met with European Union leaders Monday to try to resolve an impasse that has brought cash-strapped Greece to the brink of default, and a potential exit from the euro.

“I’m of the opinion that we’ll achieve an agreement with Greece this week,” Juncker told reporters in Brussels after meeting with Tsipras.

While German Chancellor Angela Merkel says she wants to keep the euro intact, Tsipras is probably overestimating her willingness to compromise, according to a person familiar with the government’s thinking.

Of 899 hedge funds, money managers and other trading desks surveyed by Barclays Plc this month, more than half forecast only “a small negative” from Greece leaving the common currency, thanks to its minor contribution to regional growth and buffers to limit contagion. A further 28 percent see contagion limited to peripheral economies.

“Things are going to get sorted in Greece,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 22 primary dealers that trade with the Fed. “They are not going to default today.”

‘Cautious Optimism’

Demand for haven assets helped send 10-year Treasury yields to as low as 2.26 percent June 19, down from an eight-month high of 2.50 percent reached June 11.

The gap between the U.S. Treasury 10-year yield and its German bund equivalent was 1.49 percentage points amid Monday’s global bond selloff. Benchmark German 10-year yields rose by 13 basis points to 0.88 percent.

The Bloomberg U.S. Treasury Bond Index advanced 0.7 percent in the two weeks ended June 19, the gauge’s first back-to-back weekly gain in three months.

Treasuries had rallied for two straight weeks as time runs out for an accord with Greece’s creditors before payments due June 30.

Although yields dropped last week amid skepticism that Greece would reach a deal, investors are betting continued talks are a good sign.

“There wasn’t a complete breakdown of the Greek negotiation process, and headlines from officials seemed to suggest a cautious optimism,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “That was the sentiment that started the bulk of the downtrade in European government bonds and Treasuries.”

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