Treasuries Rally as Oil-Price Plunge, Greece Turmoil Fuel Demand

Treasuries rallied, pushing bond yields to a seven-week low, as a rout in global equities extended into a third day and crude-oil prices tumbled, raising the haven appeal of U.S. debt amid few signs of inflation.

The Treasury’s auction of $21 billion in 10-year notes received the highest demand since March 2013 even with the yield on the notes the lowest in more than a year. Rates on one-year bills reached the highest since 2011 in a break of a historic year-end trend, as Federal Reserve programs to prepare for future interest-rate increase led to a glut of short-term securities available to investors. Greek bond yields soared.

“This confluence of events is putting tremendous pressure on risk assets and creating a safe-haven use of Treasuries as a temporary parking place,” said Guy Haselmann, an interest-rate strategist at Bank of Nova Scotia in New York, one of 22 primary dealers that trade with the U.S. central bank. “We’re in a relative-value world and Treasuries are still the deepest most liquid in the world and they have yield pick-up. Greece has opened up a new looming uncertainty.”

The 30-year bond yield fell four basis points, or 0.04 percentage point, to at 2.83 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 3 percent security due in November 2044 was 103 11/32.

The Standard & Poor’s 500 Index of stocks dropped 1.6 percent, extending losses in afternoon trading. Crude oil futures fell 4.2 percent to $61.13 a barrel in New York, reaching the lowest level since July 2009.

Yield Swings

Five-year note yields dropped six basis points to 1.56 percent, after closing at 1.69 percent following the Dec. 5 employment report that showed faster-than-forecast jobs growth, fueling speculation the Fed is moving closer to raising interest rates. The rate on the 52-week Treasury bills sold at auction yesterday climbed as high as 0.229 percent, the most since June

2011.

The securities sold at the 10-year auction yielded 2.214 percent, compared with a forecast of 2.211 percent in a Bloomberg News survey of seven of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was

2.97.

The sale of 10-year notes was rated a ‘3’ by five of the Fed’s primary dealers. The characterization is based on a scale of one through five, with one being a failed auction and five judging the results as outstanding.

“Demand was OK, not a big surprise given the strength of the market,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 22 primary dealers that are obligated to bid at the auctions. “You definitely have some people who want to own Treasuries. There is a risk off mood out there.”

Debt Sales

Indirect bidders, an investor class that includes foreign central banks, purchased 53.8 percent of the notes at the auction, the most since December 2011 and compared with an average of 45.2 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 6.9 percent, versus an average of 16.2 percent at the past 10 auctions.

The U.S. sold $25 billion of three-year debt yesterday at a yield of 1.066 percent, matching the highest since April 2011, and will auction $13 billion of 30-year bonds tomorrow.

Ten-year notes have gained 10.1 percent this year, compared with a 5.6 percent return in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes. The benchmark notes lost 7.8 percent in 2013, versus a 3.4 percent decline by Treasuries overall.

OPEC Move

The Organization of Petroleum Exporting Countries cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and reduced estimates for global consumption.

“This increased volatility with the selloff in oil, increased volatility in risk assets is creating uncertainty, which is why investors are moving to the Treasury sector,” said Sean Simko, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania.

The difference between U.S. yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, narrowed to 1.70 percentage points yesterday, the lowest level in three years.

Greek government bonds extended a selloff that’s pushed three-year note yields above 10-year rates on concern a presidential election will bring down the government and raise the anti-austerity Syriza party to power.

Greek Debt

Greece’s three-year yield rose 1.11 percentage points to

9.41 percent after jumping 1.82 percentage points yesterday. The country’s 10-year securities yielded 8.60 percent.

The U.S. 10-year yield is higher than 17 other developed nations, just above Italy and right below Singapore.

The Labor Department reported employers added 321,000 jobs last month, the most since January 2012 and versus a median forecast for 230,000. Reports on retail sales tomorrow and on consumer confidence the next day will show gains, based on Bloomberg News surveys of economists.

“The market may not be as optimistic as the Fed about where the economy is going to go,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, a primary dealer. “If there’s real risk of truly robust economic growth, the 10-year should be much, much cheaper.”

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