BLBG: Treasuries Gain as Moody’s Says Greece Risks Cut in Debt Rating
By Wes Goodman
Feb. 25 (Bloomberg) -- Treasuries rose, pushing yields to the lowest level in a week, as Moody’s Investors Service said it may cut Greece’s debt rating if the nation fails to reduce the European Union’s largest budget deficit.
Longer-dated securities led gains after Greece’s unions shut transportation, medical and educational facilities yesterday, protesting Prime Minister George Papandreou’s drive to cut the budget. Standard & Poor’s said yesterday it may lower Greece’s ranking. The U.S. is scheduled to sell $32 billion of seven-year notes today, the last of four debt auctions this week totaling a record $126 billion.
“Money is shifting to safer securities,” said Kazuaki Oh’e, a bond salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-largest lender. “We’re seeing general strikes, so it’ll be difficult to fix the fiscal problems. People are thinking Greece is going to be downgraded.”
The yield on the 10-year note declined three basis points to 3.66 percent, the lowest since Feb. 16, as of 6:43 a.m. in London, according to data compiled by Bloomberg. The 3.625 percent security maturing in February 2020 gained 9/32, or $2.81 per $1,000 face amount, to 99 23/32.
The euro fell to a one-year low against Japan’s currency, dropping to 120.24 yen, the weakest since Feb. 24, 2009. The euro slid 0.5 percent against the dollar to $1.3467.
European Distress
Financial distress in Europe will help the dollar maintain its position as the world’s reserve currency, according to Pacific Investment Management Co., which runs the world’s largest bond fund.
“There is no alternative to the dollar and there is no other bond market for the world to house its $8 trillion of reserve assets,” Tony Crescenzi, a Pimco portfolio manager, wrote in a report on the company’s Web site yesterday. Pimco, a unit of Germany’s Allianz SE, is based in Newport Beach, California.
Greece may have its sovereign rating cut within months if it fails to meet the objectives in its deficit plan, Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview today in Tokyo.
Demand for safety is helping send German bond rates lower. The extra yield the nation’s two-year securities offer over similar-maturity U.S. notes shrank to 15 basis points from 61 basis points three months ago. The spread is the narrowest since it was 12 basis points in September, which was the least in almost two years.
Inflation Bets
Yields indicate traders reduced wagers on inflation.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, narrowed to 2.16 percentage points, the least since Dec. 11. It shrank from 2.49 percentage points on Jan. 11.
Treasuries still headed for a monthly decline after U.S. government reports showed the unemployment rate fell and housing starts rose. U.S. government securities have handed investors a 0.2 percent loss in February, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. The MSCI World Index of shares returned 1.02 percent.
Orders for durable goods rose in January by the most in four months, indicating manufacturing is powering the U.S. recovery, economists said before the Commerce Department reports the figure today.
‘Positive’ Data
“The data are positive,” said Roger Bridges, who oversees about $10.7 billion of debt in Sydney at Tyndall Investment Management Ltd., a unit of Australia’s third-largest insurer. “The risk is that rates will go up, but we don’t think it’s going to happen tomorrow.”
Bridges said he cut his Treasury holdings at the end of last year.
The seven-year notes being auctioned today yielded 3.15 percent in pre-auction trading, up from 3.127 percent at the prior sale of the securities on Jan. 28. Investors bid for 2.85 times the amount on offer last month, compared with an average of 2.65 for the past 10 auctions.
Treasuries also gained today as traders cut bets the Federal Reserve will increase interest rates after Chairman Ben S. Bernanke said low borrowing costs are needed to spur growth.
The yield on 30-day federal funds futures for December delivery declined to 0.48 percent, the lowest since the contracts began trading on Jan. 2, 2009, from 0.530 percent on Feb. 23. It has fallen from 1 percent at the start of the year.
‘Tend to Rally’
“Treasuries will tend to rally,” said Tsutomu Komiya, who handles U.S. government debt in Tokyo at Daiwa Asset Management Co., which has $77 billion in assets. “The Fed will keep the current rate on hold throughout this year.”
The contract yield will fall to about 0.25 percent by year- end, in line with the Fed’s target rate, Komiya said.
Bernanke said in congressional testimony yesterday economic conditions are likely to warrant “exceptionally low levels” of the benchmark interest rate for an “extended period.”
The Fed chief delivered his semiannual report on monetary policy to the House Financial Services Committee and will present it to the Senate Banking Committee today.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
