Treasuries Rise Before Record $25 Billion 10-Year Note Auction
By Cordell Eddings
Nov. 10 (Bloomberg) -- Treasury 10-year notes rose for a third day as stocks fell and the government prepared to sell a record $25 billion of the securities.
The 10-year securities headed for the longest winning run in more than a month. Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy will probably recover slowly from the deepest recession since the 1930s because of rising bank losses and San Francisco Fed President
Janet Yellen said monetary policy needs to be kept “accommodative” to encourage job growth and keep inflation from declining further.
“Risk reduction is in effect,” said
Christopher Sullivan, who oversees $1.4 billion as chief investment officer at United Nations Federal Credit Union in New York. “With little meaningful economic data the markets are being left to themselves. The market is getting some comfort from the auctions being received so well.”
The yield on the 10-year note fell three basis points, or 0.03 percentage point, to 3.46 percent at 11:30 a.m. in New York, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 gained 8/32, or $2.50 per $1,000 face amount, to 101 12/32.
Ten-year yields will rise to 3.82 percent by the middle of next year, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
The Standard & Poor’s 500 Index swung between a loss of 0.4 percent and a gain of 0.3 percent. Treasuries gained earlier after a report showing German investor confidence declined this month more than economists forecast prompted investors to seek safety in fixed income.
Fed Speakers
Boston Fed President
Eric Rosengren said many governments may lack the wherewithal to wind down troubled banks and face strong popular opposition to providing emergency aid to the firms. Fed officials
Daniel Tarullo and
Richard Fisher are also scheduled to make speeches today.
The U.S. sold $40 billion in three-year securities yesterday and is scheduled to auction $16 billion of 30-year
bonds on Nov. 12.
“Investors were too bearish and complacent going into yesterday’s auction, so we are seeing some retracement from that, helped by the weakness in equities,” said
Paul Horrmann, a broker in Jersey City, New Jersey, at ICAP Plc, the world’s largest inter-dealer broker. “Today is all about the auction and the several Fed speakers. Whether the auction can come down without a struggle at these yield levels remains to be seen.”
‘Very Fortunate’
The Treasury Department is selling unprecedented amounts of debt as President
Barack Obama borrows to fund his stimulus programs. U.S.
marketable debt stands at $6.95 trillion and reached a record $7.01 trillion in September.
“We have been very fortunate that the stock markets moved back” and are “re-liquefying the whole process,” Former Fed Chairman
Alan Greenspan said yesterday at an event in Edmonton, Alberta, presented by Abu Dhabi National Energy Co., the state- controlled energy producer.
Treasuries have handed investors a 2.7 percent loss in 2009, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. German notes earned 1.6 percent in the same period, Merrill’s indexes show.
The Fed said U.S. banks kept tightening lending standards for companies and consumers last quarter, reinforcing the central bank’s decision to leave its benchmark interest rates at record lows for a long time.
Bank Buying
At the same time, the number of banks making it tougher to borrow diminished, the Fed said yesterday in its quarterly Senior Loan Officer survey. Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the survey showed.
“One of the reasons we’re seeing stronger and stronger auctions is that as banks have less credit alternatives to lend money out, they’re also lending to the U.S. government by buying Treasuries,” said
George Goncalves, chief fixed-income rates strategist at Cantor Fitzgerald LP, one of 18 primary dealers that trade directly with the Fed. “The unfortunate part is it’s very analogous to what happened in Japan where banks in Japan were buying JGBs, their sovereign debt, instead of lending.”
German investor confidence declined more than economists forecast in November as the prospect of expiring government stimulus programs and rising unemployment tempered expectations for economic growth.
German Confidence
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months ahead, dropped to 51.1 from 56 in October. The median forecast in a Bloomberg News survey of 39 economists was for a decline to 55.
Investors should shun U.S. government bonds because the Fed and other central banks may increase interest rates as soon as next year, former Bank of England policy maker
Willem Buiter said.
“Rates will have to start rising, probably later in 2010, as inflation expectations medium and long term show up in higher long rates,” Buiter said in an interview on Bloomberg Radio today. When asked if people should be buying Treasuries, he said: “I wouldn’t, but then I’m a leading indicator of capital losses on a range of assets.”
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