Treasuries Hold Advance as Greece Drives Demand for Safety

Treasuries held onto Wednesday’s gains as Greece lost a source of funding, spurring demand for the relative safety of U.S. debt.

Benchmark notes were little changed as the European Central Bank restricted loans to Greece’s financial system, raising pressure on the country’s new government to accept German-led austerity demands to stay in the euro region. Treasuries are attractive even after this year’s plunge in yields because they still pay more than bonds in other countries, according to CIBC World Markets Corp.

“That’s the big issue,” said Kazuaki Oh’e, a debt salesman at CIBC World Markets Japan Inc. in Tokyo, referring to Greece’s debt negotiations. “It’s a flight to quality.”

The yield on the 10-year Treasury was little changed at 1.76 percent as of 9:05 a.m. in London, according to Bloomberg Bond Trader data. The 2.25 percent note due in November 2024 was at 104 12/32.

U.S. benchmark 10-year notes yield 82 basis points more than the average among their equivalent-maturity Group-of-Seven counterparts, data compiled by Bloomberg show. While the premium has narrowed from more than 1 percentage point in December, it’s still more than the average of four basis points for the past five years. A basis point is 0.01 percentage point.

‘Overwhelming Story’

“The overwhelming story continues to be that globally people are still in demand of yield,” Tom Tucci, CIBC’s head of U.S. Treasuries trading in New York, said Wednesday on the “Bloomberg Advantage” radio program with Kathleen Hays. “The U.S. asset market has benefited from that.”

The U.S. yield compares with 0.355 percent in Japan and 0.33 percent in Germany as central banks in the two countries buy government debt to spur growth by putting downward pressure on borrowing costs.

A U.S. report on Friday will show employers added 230,000 workers in January, after hiring 252,000 the previous month, according to a Bloomberg survey of economists.

“We need significantly higher rates given how well that economy is performing,” said Bill Bovingdon, the chief investment officer at Altius Asset Management Pty in Sydney. “It’s going to be a bit of an arm wrestle -- domestic data versus keeping an eye on whether things are going to improve or not with respect to the negotiations in Europe.”

Ten-year yields will rise to 2.73 percent by year-end, according to Bloomberg surveys, with the most recent forecasts given the heaviest weightings.

U.S. government debt returned 2.3 percent this year through Wednesday, based on Bloomberg World Bond Indexes. Investors earned 6.2 percent last year, the best annual performance since 2011, the data show.

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