BLBG: Treasuries Drop as U.S. Prepares to Sell $81 Billion of Debt
By Anna Rascouet and Wes Goodman
Feb. 8 (Bloomberg) -- Treasuries fell for the first time in three days as U.S. stock futures rose and the government prepared to sell a record-tying $81 billion of notes and bonds in three auctions starting tomorrow.
The Treasury will offer $2.43 trillion of government securities this year, the most ever and a 16 percent increase from 2009, according to the average forecasts of 10 bond-trading companies. U.S. officials said last week that they’ve increased the auction sizes enough to fund the budget deficit. Futures on the Standard & Poor’s 500 Index rose 0.5 percent, indicating the U.S. benchmark is set to climb for a second day.
“It’s a big week in terms of supply,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate Investment Bank in London. “It’s not a surprise to see Treasuries coming off a bit.”
The yield on the benchmark 10-year note rose 2 basis points to 3.59 percent as of 9:36 a.m. in London, according to BG Cantor Market Data. The 3.375 percent security maturing in November 2019 declined 4/32, or $1.25 per $1,000 face amount, to 98 7/32.
Ten-year yields will advance to 4.14 percent by the end of the year, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings.
The Treasury will sell $40 billion in three-year notes tomorrow, $25 billion of 10-year securities on Feb. 10 and $16 billion of 30-year bonds on Feb. 11.
Worsening Finances
Treasuries rose last week, pushing 10-year yields to the lowest level since December, on speculation worsening government finances in Greece, Portugal and Spain will slow the global economy and make it harder for companies to meet debt payments.
Greece is trying to persuade financial markets it can restrain the European Union’s largest budget shortfall without outside assistance, while borrowing costs are also climbing for Portugal and Spain. Credit-default swaps on the debt of all three countries rose to records last week, increasing demand for the U.S. government securities. Credit-default swaps are contracts designed to protect against or speculate on default.
Greece will need external financing as it tackles the largest budget shortfall within the European Union, Mohamed El- Erian, co-chief investment officer at Pacific Investment Management Co., said today at a briefing in Sydney. Fixing sovereign balance sheets will take years, he said.
Extra Yield
“You have to be bullish on Treasuries,” said Geoff Howie, an economist at MF Global Singapore Ltd., part of the world’s largest broker of exchange-traded futures and options. “The debt problems in Europe are another sign that the developed world is still in trouble. You’ve got to start creating jobs before mom and dad in America will start taking on risk.”
Ten-year yields may fall to 3.45 percent by the end of March, he said.
The U.S. is in no danger of losing its Aaa debt rating, Treasury Secretary Timothy F. Geithner said in an ABC News interview broadcast yesterday.
Former Federal Reserve Chairman Alan Greenspan said it is “very difficult” to see U.S. unemployment falling soon, speaking yesterday on NBC’s “Meet the Press” program.
The Treasury’s decision to stop increasing its debt sales may bolster the economy just as the Fed withdraws emergency spending measures.
Auction Growth
Restricting growth in the auction sizes will cause the difference in yields between 2- and 10-year notes to shrink to 2.15 percentage points by year-end from the record 2.90 percentage points last month, according to Bloomberg surveys of banks and securities firms.
The narrower yield curve may cap mortgage rates, which are pegged to 10-year Treasury note yields, as the central bank’s $1.25 trillion in mortgage-bond purchases end on March 31. It also would encourage banks that have relied on profiting from differences between short- and long-term rates to boost lending as the Fed tries to cut its stimulus and lending programs.
Ried Thunberg ICAP Inc.’s index measuring the outlook for Treasuries through the end of March declined to 42 for the seven days ended Feb. 5 from 43 the week before. A figure less than 50 shows investors expect prices to fall.
The company, in Jersey City, New Jersey, interviewed 22 fund managers controlling $1.2 trillion.
To contact the reporters on this story: Anna Rascouet in London at arascouet@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
