Treasuries erased their decline on concern the rescue for Ireland will fail to contain Europe’s sovereign-debt crisis.
The Federal Reserve intends to buy Treasuries twice today as part of its plan to pump $600 billion into the economy through June and keep yields low. Bonds fell earlier as euro- region governments agreed to an 85 billion euro ($113 billion) aid package for Ireland.
“The market concluded that little has changed as funding pressures are still great for euro sovereigns,” said Peter Chatwell, a fixed-income strategist at Credit Agricole SA in London. “The Fed buying operations offer near-term support, though only tactical in nature.”
The 10-year note yield fell one basis point, or 0.01 percentage point, to 2.86 percent at 7:39 a.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 rose 1/8, or $1.25 per $1,000 face amount, to 97 31/32.
The 30-year bond yield decreased almost one basis point to 4.21 percent. The two-year note yield was little changed at 0.52 percent after rising two basis points earlier today.
European finance chiefs ended crisis talks in Brussels yesterday by endorsing a Franco-German compromise on post-2013 rescues that means investors won’t automatically take losses to share the cost with taxpayers as German Chancellor Angela Merkel initially proposed.
The first test of the rescue came as markets resumed trading after speculation intensified last week that Portugal and perhaps even Spain will require support.
Italian Sale
Italy’s borrowing costs rose at a sale of 6.8 billion euros ($9 billion) of bonds. The Treasury sold 3 billion euros of securities due in March 2021 to yield 4.43 percent, up from 3.89 percent at a sale on Oct. 28.
The Fed is scheduled to buy $1.5 billion to $2.5 billion of Treasuries due from February 2021 to November 2027 today and $6 billion to $8 billion in government debt maturing from May 2013 to November 2014.
The central bank plans to focus about 86 percent of its purchases on notes due in 2.5 years to 10 years, leaving the 30- year bond as the security that most closely reflects market expectations for inflation. Since the Fed’s Nov. 3 announcement, the 30-year yield rose 0.28 percentage point, suggesting growing investor confidence in the central bank’s efforts to avoid deflation as the economy expands.
‘Bellwether Issue’
“The 30-year, with minimal Fed involvement, will become the bellwether issue for the bond market’s outlook on the economy and inflation,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York.
Treasuries have handed investors a 1.1 percent loss in November, according to Bank of America Merrill Lynch data. The decline would be the biggest since the debt lost 2.6 percent in December 2009. Treasuries have returned 7.4 percent this year, the indexes show. That compares with a 7.1 percent gain for German bunds.
The speed of the U.S. recovery is surprising, said Zeal Yin, who invests in dollar-denominated debt at Shin Kong Life Insurance Co., Taiwan’s second-largest life insurer.
“It will be difficult for Treasuries to rally,” said Yin, who helps oversee the equivalent of $49.2 billion. “The U.S. economy is recovering.” Ten-year yields will rise to 3 percent by June 30, he said.
U.S. Shopping
The average U.S. shopper spent 6.4 percent more over the Thanksgiving weekend than a year earlier, the National Retail Federation reported yesterday, as the Christmas retail sales season began.
The 10-year note yield will advance to 3.24 percent by the end of 2011, according to a Bloomberg survey of banks and securities firms, with the most recent forecasts given the heaviest weightings.
Fund managers in a weekly survey by Ried Thunberg ICAP Inc. became less bearish on the outlook for Treasuries through June, with the research company citing the Korean tensions and Europe’s fiscal crisis.
Ried’s sentiment index rose to 45 for the seven days ended Nov. 24, matching this year’s high, from 43 the week before. A figure less than 50 indicates investors expect prices to fall.
The company, which is a unit of the world’s largest interdealer broker and is based in Jersey City, New Jersey, surveyed 22 money managers controlling $1.37 trillion.
To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
