Treasuries Climb as ECB Drops Waiver on Greek-Government Debt

Treasuries rallied as investors sought safety after the European Central Bank dropped a waiver that allowed Greece to use government debt as collateral, citing doubt the new government is committed to past reform pledges.

Yields on benchmark U.S. 10-year notes fell from the highest level in more than a week amid concern Greece faces a cash crunch. Treasury prices tumbled Tuesday as Greece promised to pay its debts and oil climbed.

“It’s a risk-off move,” said David Keeble, head of fixed-income strategy at Credit Agricole SA in New York. “It does create an antagonistic situation between the ECB and the new Greek government. Hopes for an easy compromise have been knocked on the head.”

The U.S. 10-year note yield sank four basis points, or 0.04 percentage point, to 1.75 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data. It rose five basis points earlier to 1.84 percent, the highest since Jan. 23. The price of the 2.25 percent security due in November 2024 jumped 3/8, or $3.75 per $1,000 face amount, to 104 14/32.

A measure of volatility rose to 92.27, little changed from 92.74 yesterday, the highest since October 15, according to Bank of America Merrill Lynch’s MOVE Index. The average in 2014 was 62.

The decision by the ECB’s Governing Council will force Greek lenders, who since 2010 had been able to access funds from the ECB against junk-rated collateral, to apply for funding from their national central bank at less-advantageous rates.

Prime Minister Alexis Tsipras’s Syriza party finished first in Greece’s elections last month. The party opposes austerity measures the nation agreed to in exchange for a bailout.

Crude Falls

Treasuries also rose as crude erased yesterday’s 7 percent gain amid a U.S. supply glut. Stockpiles climbed 6.33 million barrels in the week ended Jan. 30 to the highest level since Energy Information Administration weekly data started in 1982.

“Greece and oil drove us down yesterday, and it’s taking us back up today,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 22 primary dealers that trade with the Federal Reserve.

U.S. stocks fell, with the Standard & Poor’s 500 Index declining 0.4 percent.

Bonds dropped earlier after data showing gains in U.S. company hiring and service businesses bolstered the case for the Fed to raise interest rates this year amid a strengthening economy. The U.S. is forecast to report its 12th straight monthly nonfarm-payrolls gain of more than 200,000 jobs on Friday.

There’s a 64 percent chance the U.S. central bank will increase borrowing costs by year-end, according to calculations by Bloomberg based on futures trading.

Fed policy makers said in a statement Jan. 28 after a meeting that the U.S. economic expansion was “solid,” an improvement over the “moderate” performance it saw in December. They played down low inflation.

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