Beware 30-Year Treasury Bonds Now That Greece Is Out of the Way

Updated on

Losses are mounting in 30-year Treasuries as the most volatile government bonds head for their fourth straight monthly decline.

Demand for the haven of U.S. government debt is waning now that Greece has reached an agreement with its creditors. Bond-market metrics indicate the American economy is growing fast enough to convince the Federal Reserve to end the zero-interest rate policy set during the financial crisis of 2008, though an increase may not come until 2016.

Thirty-year Treasuries, known as long bonds, are down 1.8 percent in July, according to Bank of America Merrill Lynch indexes. They’ve tumbled 12 percent since the end of March. By comparison the broader Treasury market has fallen 2.2 percent in the period. With investors demanding more compensation to buy longer-maturity debt, the yield is approaching the highest level in nine months.

“The U.S. economy looks to be good, and we’re seeing a lot of the risk around Europe dissipate over the last 24 hours,” said Peter Jolly, head of research in Sydney at National Australia Bank Ltd., the nation’s largest as measured by assets. “We’re back to looking at fundamentals.”

Long bonds got a respite Tuesday, with the yield falling three basis points to 3.21 percent at 6:48 a.m. in London, according to Bloomberg Bond Trader data. The 3 percent security due May 2045 rose 17/32, or $5.31 per $1,000 face amount, to 96 1/32. The yield climbed to 3.25 percent Monday, within a basis point of the highest level since September.

Benchmark 10-year yields dropped three basis point Tuesday to 2.43 percent.

Most Sensitive

Thirty-year bonds are among those that are influenced the most by the long-term growth outlook. Investors holding shorter debt have the assurance they will get their money back sooner when the securities mature, whatever happens in the economy.

The extra yield on 30-year bonds over two-year notes expanded to 257 basis points on July 10, the biggest difference since November. It was at 254 basis points today.

Treasuries dropped on Monday as Greek Prime Minister Alexis Tsipras and European creditors agreed to a rescue plan for the nation, curtailing demand for the safest securities.

The Fed is preparing to raise interest rates as the U.S. economy improves, with the unemployment rate falling to a seven-year low of 5.3 percent in June. Chair Janet Yellen last week said a rate increase would be appropriate “later this year.”

Six Months

Traders aren’t expecting a shift so soon. A Morgan Stanley index based on futures contracts shows investors see the central bank moving in about six months. As recently as last week, the index projected the move wouldn’t happen for almost eight months.

Yellen is scheduled to address U.S. lawmakers on Wednesday and the following day.

Policy makers have kept their benchmark at almost zero since December 2008 to support the economy during the recession that began in December 2007 and ended in June 2009.

“It’s a potentially pretty explosive situation this week,” given the Greek resolution and the Yellen speeches, said Eric Liu, head of research at Vanda Securities Ltd. in Hong Kong. Bond market yields may rise as much as 15 basis points in the next week or two, he said. “You could get a pretty big pop in yields.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE