Treasury Yields Approach Lowest in a Month on Italy Debt Concern
Nov. 7 (Bloomberg) -- Treasury 10-year note yields declined to within seven basis points of the least in a month amid concern that Italy may struggle to reduce its debt burden, boosting demand for the relative safety of U.S. debt.
U.S. 30-year bonds pared gains after Italy's Il Foglio newspaper reported that Prime Minister Silvio Berlusconi may step down within hours and push for early elections. Berlusconi denied he's stepping down, Ansa said, citing comments from the premier. Greek politicians agreed to form a national unity government to secure international financing. German bunds outperformed Treasuries as the government plans to sell $72 billion of debt this week.
"Attention is turning from Greece to Italy," said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. "That's driving safe-haven flows into Treasuries and bunds. On a relative basis, Treasuries are underperforming bunds in a risk-off situation ahead of this week's supply of three-, 10- and 30-year bonds."
The yield on the 10-year note was at 2.03 percent at 7:28 a.m. New York time, according to Bloomberg Bond Trader prices. It reached 1.93 percent on Nov. 3, the least since Oct. 6. The 2.125 percent securities maturing in August 2021 rose 2/32, or $0.63 per $1,000 face amount, to 100 28/32. Thirty-year yields were at 3.09 percent. A basis point is 0.01 percentage point.
Italian Record
Italy's 10-year yield rose as much as 31 basis points to 6.68 percent, even after the European Central Bank was said to have bought the nation's debt today. The Greek two-year yield climbed to more than 107 percent.
"Italian yields have risen despite reports of buying by the European Central Bank, and that's a worry," Wand said.
Credit-default swaps on Greek government debt currently suggest an 89 percent chance of default within five years, data from CMA show. The chance that Italy will fail to meet its debt obligations is 36 percent, while the U.S. is at 4 percent, the data show.
Treasuries weakened earlier after Greece's George Papandreou met with Antonis Samaras, the leader of the main opposition party, and agreed to form a new government with the aim of leading the country to elections "immediately after the implementation of European Council decisions on October 26," according to an e-mailed statement yesterday from the office of President Karolos Papoulias in Athens.
Both sides will convene again today to decide who will be the head of the administration with a separate meeting to discuss the timeframe and the new government's mandate, according to the statement.
The U.S. will sell $32 billion of three-year notes tomorrow. The debt yielded 0.38 percent in pre-auction trading, dropping from the 0.544 percent at the prior sale on Oct. 11.
U.S. Sale
Investors bid for 3.3 times the amount for sale in October, more than the average of 3.21 for the past 10 auctions. Indirect bidders, the category of investors that includes foreign central banks, bought 37.8 percent of the notes compared with 35.7 percent in the prior auction.
The Treasury is scheduled to sell $24 billion of 10-year notes on Nov. 9 and $16 billion of 30-year bonds on Nov. 10.
"The problem is contagion to Italy, which is several times larger than Greece," said Hideo Shimomura, who helps oversee the equivalent of $79.2 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan's biggest publicly traded bank. "Long-term yields all over the world will still be at low levels."
Fed Buying
The median forecast of economists surveyed by Bloomberg News is for Treasury 10-year yields to rise to 2.24 percent by the end of December and 2.35 in the first quarter of 2012.
The Federal Reserve plans to buy today $2.25 billion to $2.75 billion of debt maturing from February 2036 to August 2041 under its program to lower borrowing costs.
"The general risk-averse tone and the sense that we're not going to see much growth is in the price," said Russell Jones, the Sydney-based global head of debt strategy at Westpac Banking Corp., Australia's second-largest lender. "Long-term rates in the U.S. are going to stay low for an extended period."
The Stoxx Europe 600 Index fell as much as 1.8 percent, while futures on the Standard & Poor's 500 Index declined as much as 1.5 percent.
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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