Treasuries Snap Two-Day Loss Amid Caution on Europe Crisis Talks
Oct. 24 (Bloomberg) -- Treasury 10-year notes snapped a two-day decline after European policy makers ruled out tapping the central bank to boost a rescue fund for indebted nations as they struggle to resolve the region's debt woes.
The securities held last week's advance, with politicians scheduled to meet in two days to discuss further crisis-fighting measures. Treasuries underperformed German bunds before reports this week forecast to show the U.S. economic outlook is improving, while Europe's growth prospects dim.
"As the event nears, expectations for some broader resolve that provides a grand solution to the European crisis seem to be more and more elusive," said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. "A part of what we are seeing is a bit of acknowledgement that we may not end the week with any more clarity. We're looking for a sideways grind in yields."
Ten-year yields fell three basis points, or 0.03 percentage point, to 2.19 percent at 8:38 a.m. New York time, according to Bloomberg Bond Trader prices. The 2.125 percent securities maturing in August 2021 gained 1/4, or $2.50 per $1,000 face amount, to 99 14/32.
The extra yield investors are paid to hold Treasuries instead of 10-year German bunds increased three basis points to 14 basis points. As recently as Oct. 3, Treasuries yielded six basis points less than bunds.
EFSF Decision
While European policy makers outlined plans to aid banks after weekend meetings, they're still to determine the best way to maximize use of the European Financial Stability Facility. Leaders excluded a forced restructuring of Greek debt, sticking with the tactic of enticing bondholders to accept losses to help restore the country's finances.
The euro slipped 0.4 percent to $1.3847. The Stoxx Europe 600 Index of European equities rose 0.3 percent and futures on the Standard & Poor's 500 Index were little changed.
A euro-area composite index based on a survey of purchasing managers in services and manufacturing fell to 47.2 from 49.1 in September, London-based Markit Economics said. That's the lowest since July 2009 and below the 48.8 forecast by economists, according to the median of 17 estimates in a Bloomberg survey.
U.S. gross domestic product expanded an annualized 2.5 percent in the third quarter, according to economist estimates before the Oct. 27 report, after growing 1.3 percent in the previous period. The Conference Board's consumer confidence index climbed in October for a second month, another survey shows before the New York-based group releases the data tomorrow.
Economic Surprises
Citigroup Inc.'s U.S. Economic Surprise Index climbed to 17, the highest level since April, as data exceeds economists' forecasts.
Last week's advance for 10-year notes was the first since Sept. 23 and U.S. government debt is set for the first monthly loss since June, with a drop of 1.1 percent since Sept. 30, according to Bank of America Merrill Lynch indexes.
"The momentum in U.S. data has turned," said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. That explains the rise in Treasury yields, he said.
The Federal Reserve may still increase monetary stimulus, including an expansion of its balance sheet, according to Pacific Investment Management Co., which oversees the world's largest bond fund.
'Unprecedented Amount'
Growth in the U.S. will be constrained next year amid an "unprecedented amount" of fiscal contraction, Scott Mather, Pimco's head of global portfolio management, said at a briefing today in Sydney. The Fed will start by changing its language before taking steps to bolster the economy including efforts to stabilize the housing market, he said.
The Fed is scheduled to buy as much as $2.75 billion of Treasuries maturing from February 2036 to August 2041 today, according to the central bank's website, as part of its plan to stimulate the economy through lower borrowing costs.
The U.S. will sell $35 billion of two-year notes tomorrow, the same amount of five-year securities on Oct. 26 and $29 billion of seven-year bonds on Oct. 27.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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