U.S. 30-Year Bonds Tumble in Longest Losing Streak Since 2009
Oct. 29 (Bloomberg) -- Treasury 30-year bonds dropped for a fifth week, the longest skid in more than two years, as a deal reached by European leaders to tame the region's debt crisis fueled appetite for higher-yielding assets.
Yields on 10-year debt reached the highest level since Aug. 9 as data showed the U.S. economy grew at the fastest pace in a year. Demand at the Treasury's $29 billion auction of seven-year notes was the lowest since May 2009. Stocks climbed, while U.S. debt headed for its worst month in almost two years. The Federal Reserve opens a two-day policy meeting on Nov. 1.
"The market has gotten crushed," said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. With details of the European debt plan remaining to be filled in, "there's opportunities for it to go both ways, for it to work and surprise people, or go poorly and drive people into riskless assets," Roth said.
Thirty-year bond yields climbed 11 basis points, or 0.11 percentage point, to 3.38 percent yesterday in New York, from 3.26 percent on Oct. 21, according to Bloomberg Bond Trader prices. Long-bond yields haven't fallen for as many weeks since May 2009. The 3.75 percent securities due in August 2041 dropped 2 7/32, or $22.19 per $1,000 face amount, to 107.
Ten-year yields increased 10 basis points to 2.32 percent and touched 2.42 percent.
Bonds pared weekly losses yesterday amid concern European officials may need to take further steps to stem the crisis.
Treasuries have lost 1.9 percent in October, the most in a month since December 2009, a Bank of America Merrill Lynch index shows. German bunds fell 1.5 percent in the month, and Japanese government debt was little changed.
Two Summits
Stocks climbed and Treasuries tumbled on Oct. 27 after the second summit in six days of talks ended in Brussels with European governments boosting their rescue fund to 1 trillion euros ($1.4 trillion) and persuading bondholders to take 50 percent losses on Greek debt. They also agreed on a recapitalization of banks and a potentially bigger role for the International Monetary Fund in expanding the bailout fund.
Thirty-year bond yields climbed 24 basis points after the announcement, the most since Aug. 11, while the Standard & Poor's 500 Index advanced as much as 4.1 percent on bets the plan will avert a global slump.
"It's a huge performance-anxiety shift," George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., said Oct. 27. The firm is one of 22 primary dealers that trade with the Fed. "There's been a fear in the market surrounding Europe. The markets are doing Operation Unwind and leaving to look for higher-yielding securities, and that will cause Treasuries to underperform."
More Than a Year
Treasuries rose yesterday as German Chancellor Angela Merkel said the crisis won't be over in a year and Italy sold less than its maximum target at a bond auction, raising concern officials hadn't done enough to curb the turmoil.
The Treasury in Rome sold 7.93 billion euros, less than the maximum 8.5 billion-euro target, of four different bonds. The yield on Italy's 10-year bond increased 15 basis points to 6.02 percent, a one-week high.
Merkel said the 17-nation euro region faces a confidence crisis that risks turning away investors as countries such as China and India grow.
"We're not going to get rid of that in a day, with one big bang, or in a year," Merkel said in Deggendorf, Germany.
The European agreement on a 50 percent haircut on Greek bonds may create an event of default if accepted, Fitch Ratings said in a statement.
FOMC Meeting
The Federal Open Market Committee meets next week to discuss monetary policy. It announced on Sept. 21 a program to buy $400 billion of long-term Treasuries through June while selling an equal amount of shorter-term debt in its holdings to spur growth by keeping borrowing costs down. The effort is called Operation Twist after a similar program in the 1960s.
The central bank purchased $9.6 billion of Treasuries this week due from 2017 to 2041 as part of the program. It sold $17.7 billion of debt due from 2013 to 2014.
The Fed previously bought $2.3 trillion of assets under two rounds of a monetary-stimulus tactic called quantitative easing.
Policy makers next week may clarify benchmarks they want the economy to reach before it's ready to raise borrowing costs from near zero, Mitsubishi's Roth said.
The U.S. economy accelerated in the third quarter at a 2.5 percent annual rate, the fastest since the third quarter of 2010, Commerce Department data showed on Oct. 27.
Unemployment held at 9.1 percent in October, according to the median forecast of economists in a Bloomberg News survey before the government reports the data on Nov. 4.
Net Long Position
Hedge-fund managers and other large speculators reversed from a net-short position to a net-long position in U.S. 30-year bond futures in the week ending Oct. 25, according to Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 1,096 contracts on the Chicago Board of Trade. Last week, traders were net-short 8,284 contracts.
The government sold $99 billion of notes this week to mixed demand. The sale of seven-year notes Oct. 27 drew a bid-to-cover ratio, a gauge of demand that compares the amount bid with the amount offered, of 2.59, the lowest since May 2009. The ratios at the two- and five-year note offerings were above average.
Indirect bidders, the investor class that includes foreign central banks, bought most five-year notes since the September 2010 sale and the fewest seven-year securities since June.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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