Treasuries Advance After Italian Auction as Equity Futures Fall
Oct. 28 (Bloomberg) -- Treasuries rose, led by five-year notes, after borrowing costs climbed at an Italian debt sale, a sign of investor concern that European officials may need to take further steps to bring an end to the region's debt crisis.
Ten-year notes snapped a two-day drop, pushing yields down from an 11-week high, amid speculation the U.S. economy isn't expanding fast enough to justify this month's rout. They plunged yesterday after European officials announced a plan to increase the region's bailout fund, recapitalize banks and write down Greek debt. Futures on the Standard & Poor's 500 Index declined 0.5 percent.
"It doesn't look as if the European Union deal was sufficient to unwind some of the fears about Italy," said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. "We had a sharp jump in Treasury yields yesterday and risk markets look like they're taking a bit of a pause for breath. That's supporting Treasuries."
The yield on the five-year note declined four basis points, or 0.04 percentage point, to 1.17 percent at 7:01 a.m. New York time. The 1 percent security due in October 2016 rose 6/32, or $1.88 per $1,000 face amount, to 99 7/32. The yield jumped 11 basis points yesterday.
Ten-year note yields fell one basis point to 2.39 percent, after earlier rising to 2.42 percent, the most since Aug. 9. Two-year yields were also one basis point lower, at 0.30 percent.
Italian Auction
Italian notes and bonds slid after the Rome-based Treasury sold 3.08 billion euros ($4.4 billion) in bonds due in 2014 to yield 4.93 percent, up from 4.68 percent at the last auction of the same securities on Sept. 29. Italy also sold securities due in 2017, 2019 and 2022. Italy's bond market is Europe's biggest.
Europe's debt woes may not be over, according to Takuya Yamamoto, an investor at Diam Co. in Tokyo, which manages the equivalent of $130.5 billion
"The agreements in Europe are not so concrete," said Yamamoto, whose company is a unit of Dai-Ichi Life Insurance Co., Japan's second-biggest life insurer. "Treasury yields will decline again." Ten-year rates will be 2 percent to 2.2 percent by year-end, he predicted.
The 10-year rate will slide to 2.09 percent by Dec. 31 and be 2.26 percent by March 31, according to Bloomberg surveys of banks and securities companies, with the most recent forecasts given the heaviest weightings.
U.S. Recovery
The U.S. is "a long way from a satisfying, robust economic recovery," Stuart Hoffman at PNC Financial Services Group Inc. in Pittsburgh said yesterday on Bloomberg Television. "We're still staggering around." PNC's assets under management total $108 billion, according to the company's website.
Unemployment held at 9.1 percent in September and home prices in 20 U.S. cities dropped more than forecast in August, according to government and industry reports.
Still, Treasuries have handed investors a 1.9 percent loss in October as of yesterday, the most since December 2009, Bank of America Merrill Lynch data show. German bunds fell 1.5 percent in the month and Japanese government debt was little changed.
U.S. economic reports today will show gains in income, spending and inflation as well as an upward revision to consumer confidence, Bloomberg surveys of economists indicate.
The Federal Reserve is scheduled to sell $8 billion to $9 billion of Treasuries due from October 2013 to February 2014 from its holdings today, according to its website. It's swapping $400 billion of shorter-term debt for securities due in as much as 30 years to spur the economy by keeping long-term interest rates down.
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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