Treasuries Rise as Greece Bailout Dispute Boosts Haven Demand

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Treasuries rose for the first time in three days as Greece’s struggle to stay in the euro union fueled demand for the safety of sovereign debt from the world’s largest economy.

U.S. government securities have fluctuated in the past month as Greek and European officials negotiate over whether the nation should receive a bailout package. Treasuries fell at the end of last week on speculation the parties would reach an agreement. The flight to quality revived Monday after euro-area leaders on Sunday gave Greek Prime Minister Alexis Tsipras a list of demands.

“Treasuries are one of the good safe havens,” said Yoshiyuki Suzuki, head of fixed income at Fukoku Mutual Life Insurance Co. in Tokyo. “They have relatively high yield and enough liquidity. Greece and Europe have lot of uncertainty.”

The benchmark U.S. 10-year yield dropped two basis points to 2.38 percent as of 6:40 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2.125 percent note due in May 2025 rose 6/32, or $1.88 per $1,000 face amount, to 97 25/32.

Suzuki said he’d like to buy Treasuries if the yield climbs to 2.50 percent or higher.

Ten-year yields are 0.90 percent in Germany, and 0.44 percent in Japan.

Beyond Greece

Once Greece is out of the way, the expanding U.S. economy will lead the Federal Reserve to increase interest rates this year, said Hajime Nagata, who invests in Treasuries for Diam Co. in Tokyo.

“If this matter settles down, the market will start to focus on the U.S.,” he said. “Probably Treasury yields will go up.”

Diam trimmed its Treasury holdings during the past week, deciding it no longer needed an overweight position as a haven, he said.

Fed Chair Janet Yellen said she still expected to increase interest rates this year as the U.S. economy improves, in a speech last week.

Ten-year yields will rise to 2.88 percent by the middle of next year, based on a Bloomberg News survey of economists with the most recent forecasts given the heaviest weighting. An investor who bought today would lose about 1.7 percent if the projection is correct, data compiled by Bloomberg show.

Treasuries have lost 0.4 percent in 2015, based on Bloomberg World Bond Indexes.

Even if Greece’s turmoil fades and the Fed raises borrowing costs, further declines in Treasuries may be limited by demand for the relatively high yields on the securities.

JPMorgan Chase & Co. says the excess money in the global economy -- about $5 trillion -- will support demand and bolster asset prices.

“The world is awash with unprecedented excess liquidity,” said Nikolaos Panigirtzoglou, a strategist at JPMorgan, the top-ranked firm for U.S. fixed-income research by Institutional Investor magazine. “Fed tightening won’t change that.”

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