Category Archives: Treasurys
Bond Markets Beg for More Debt
“At a time when politicians are squeezing budgets to cut borrowing, the bond market is clamoring for more debt, pushing yields on almost $20 trillion of government securities to less than 1 percent.
The average yield to maturity for the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index fell to a record-low 1.34 percent last week from 3.28 percent five years ago. Even though the amount of bonds in the index has more than doubled to $23 trillion — bigger than the gross domestic product of the U.S. and China combined — countries from Germany to Rwanda sold debt in the past month at their lowest yields….”
Safety Drives Treasury Sales Higher
“Treasuries rose, pushing 10-year note yields toward a four-month low, as a decline in stocks and commodities fueled demand for the safest assets.
Benchmark 10-year notes climbed for the fourth time in five days. Treasuries are outperforming U.S. stocks for the first time in five months on bets the Federal Reserve will maintain asset purchases and concern the global economy is slowing. New York Fed President William C. Dudley and his Chicago counterpart Charles Evans stressed the need for the central bank to maintain record stimulus yesterday. The U.S. will sell $18 billion of inflation-linked debt tomorrow….”
Germany Sells 3.35 Billion Euros at a Record Low 1.28%
“Germany allotted 3.35 billion euros of 10-year bunds at an average yield of 1.28 percent, thelowest on record, data from the Bundesbank showed.
Investors bid for 5.23 billion euros of the securities, compared with a maximum sales target of 4 billion euros, according to the data.”
Abenomics Starts a Wave of Dollar Financing
“Shizuoka Bank Ltd. (8355) joined Japanese national lenders in expanding U.S. dollar finance activity, anticipating monetary easing will crush margins on yen loans.
The nation’s second-biggest regional bank by market value raised $500 million in zero-coupon notes due 2018, the first public sale of dollar-denominated convertible bonds by a Japanese company since 2002. The average interest rate on long- term yen loans from the country’s lenders fell to 0.942 percent in February, compared with 3.348 percent companies worldwide pay on dollar facilities, according to data compiled by Bloomberg.
Mitsubishi UFJ Financial Group Inc. plans to increase energy and utility financing in the U.S., as the Bank of Japan (8301)’s focus on cutting long-term borrowing costs undercuts earnings from yen loans, President Nobuyuki Hirano said. Sumitomo Mitsui (8316) Financial Group Inc. aims to sell a record amount of dollar bonds this year for overseas business, even as the BOJ policy seeks to spur domestic lending to revive the economy.
“You know it’s a big deal when a conservative lender like Shizuoka Bank does this, a sure sign that yen debt is just not cutting it anymore,” said Nozomi Kokubun, a Tokyo-based analyst at SMBC Nikko Securities Inc. “Dollar-denominated loans are attractive for banks because they offer a spread you simply won’t find in Japan.”
Excess Cash…”
Italy Kicks Off a Successful Bond Auction With Lower Yields
“Italian borrowing costs dropped at an auction of 7.17 billion euros ($9.38 billion) of bonds today as investors shrug off risks tied to the country’s political crisis.
Italy sold 4 billion euros of a new 2.25% 2016 bond at 2.29 percent, down from the 2.48 percent on similar maturing debt March 13. Investors bid 1.40 times the amount of the new three- year bond offered, up from 1.28 times last month.
The Rome-based treasury also sold longer-term debt, placing 1.67 billion euros of 4.75% 2028 bonds and 1.5 billion euros of floating-rate 2017 bonds to yield respectively 4.68 percent and 2.74 percent. Italy sold a total of 7.17 billion euros of debt, near the 7.5 billion-euro maximum target.
“The auction was smoothly absorbed,” Annalisa Piazza…”
U.S. Treasuries Hit New Yearly Highs as Safe Haven Bets Continue To Be Placed
“The “fear trade” is alive and well.
Investors rediscovered the appeal of haven Treasury bonds on Thursday, amid a flurry of worrying news ranging from North Korea to the domestic job market.
The mood change sent Treasury prices rallying to the highest point this year. The yield on the 10-year Treasury note, which moves inversely to prices, fell to its lowest point this year and equal to its closing level at the end of 2012.
The moves left buyers of the 10-year Treasury note in the black for the year, a notable swing after the debt spent the entire first quarter in negative territory.
The rally in U.S. government debt began early Thursday after the Bank of Japan8301.JA -3.16% launched an aggressive monetary-easing policy. Buyers poured more heavily into the market after U.S. jobless claims jumped unexpectedly to the highest level in four months, a sign of softness in the labor market…..”
Spanish Yields Hit Two and a Half Year Lows
“Spanish government bonds rose, pushing two-year note yields to a 2 1/2-year low, as the nation sold more debt than its maximum target at an auction, underscoring demand for higher-yielding euro-region assets.
Italian bonds advanced for a fourth day after a report showed the nation’s services sectorcontracted less than economists forecast last month. German 10-year bund yields were about two basis points from the lowest since August after the European Central Bank left its key refinancing rate at 0.75 percent. France auctioned 10-year bonds at a record-low yield.
“It was a fairly good auction in Spain,” said Michael Leister, an interest-rate strategist at Commerzbank AG in London. “The size sold was above the top of the range. It confirms Spain’s access to funding is very robust and that should support peripheral debt.”
Spain’s two-year note yields dropped seven basis points, or 0.07 percentage point, to 2.13 percent at 12:47 p.m. London time, after reaching 2.07 percent, the lowest since October 2010. The 2.75 percent security maturing in March 2015 rose 0.14, or 1.40 euros per 1,000-euro ($1,281) face amount, to 101.19.
The Spanish 10-year bond yield declined four basis points to 4.88 percent, while the rate on similar-maturity Italian debt fell eight basis points to 4.51 percent.
Spanish Sale…”
U.S. Treasuries Fall for a Second Quarter as Investor Believe in Recovery
“Treasury 10-year notes fell for a second quarter, the first back-to-back drop in two years, as investors sought higher-yielding assets amid improved economic data and a Federal Reserve pledge to maintain monetary stimulus.
Yields on the benchmark securities reached 11-month highs as the U.S. unemployment rateunexpectedly fell in February and employers added more jobs than forecast. Payrolls also swelled in March, a report next week may show. The rise in yields was tempered as the bailout of Cyprus and political turmoil in Italy renewed the haven appeal of U.S. government debt.
“The U.S. economic data was stronger in the first quarter than in the fourth, and it has confirmed the notion that while we are not into a roaring recovery, the U.S. economy seems to be on somewhat better footing,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
The U.S. 10-year yield increased nine basis points, or 0.09 percentage point, from January through March to 1.85 percent. It touched 2.08 percent on March 8, the highest since April 5, 2012. The yield climbed 12 basis points from October through December. Its last two-quarter rise ended in March 2011.
Ten-year yields fell eight basis points this week in New York, according to Bloomberg Bond Trader prices.
For the benchmark yield to rise to a Bloomberg survey’s median year-end estimate of 2.25 percent, “we will have to see the employment market improve, the situation in Europe subside and the end of the Fed’s quantitative-easing program become apparent,” Lyngen said.
Cheap Levels…”
Bond Yields Spike in Slovenia Despite Continued Pledge to Austerity
“Slovenia’s pledge to continue austerity measures failed to stem a rise in bond yields to record highs as investors worry the Alpine nation will follow Cyprus as the next euro-region member requiring a bailout.
Prime Minister Alenka Bratusek, in her first major policy speech since taking office, told Parliament yesterday that her week-old government would rebuild ailing banks and improve state finances that are in “bad shape” so the country won’t become the sixth euro member to need aid.
European Union officials are striving to contain a debt crisis that prompted Cyprus to joinGreece, Portugal, Ireland and Spain in agreeing on a bailout. Bratusek’s lack of specifics on how to avoid foreign support helped push the country’s benchmark dollar-denominated bonds to an all-time high at a time when Slovenia is looking to tap bond markets.
“Developments in Cyprus have translated into concerns that Slovenia will struggle to access the Eurobond market over the coming months as it moves to recapitalize its banking sector and shift reliance for budget financing away from the domestic banking sector, with an increased risk of a haircut in deposits,” Gillian Edgeworth, chief economist at UniCredit SpA (UCG) in London, wrote in a note to clients yesterday.
The yield on Slovenia’s dollar-denominated bonds maturing in 2022 rose a record 6.382 percent yesterday and dropped 4 basis points today to 6.34 percent at 9:20 a.m. in Ljubljana, data compiled by Bloomberg show. The cost of protecting Slovenian bonds with credit-default swaps surged 66 basis points today to 384, according to data compiled by Bloomberg.
Different Circumstances…”
Treasury Prices Fall Heading Into the Fed Meeting
“NEW YORK (MarketWatch) — Treasurys fell on Wednesday, pushing yields higher for the first trading session since the controversial deposit levy was announced as part of Cyprus’s bailout package, as the market looked ahead to the conclusion of the Federal Open Market Committee meeting.
Federal Reserve Chairman Ben Bernanke is scheduled to speak in a press conference at 2:30 p.m. Eastern.
Yields on the benchmark 10-year U.S. Treasury note 10_YEAR +2.21% rose 4 basis points to 1.95%. Yields move inversely to prices and one basis point is one one-hundredth of a percentage point.
Yields on the 30-year bond30_YEAR +1.31% rose 3 basis points to 3.16% and yields on the five-year note5_YEAR +2.68% rose 2 basis points to 0.802%.
Uncertainty in Cyprus increased the safe-haven bid for Treasurys as the Cypriot parliament rejected the deposit tax on Tuesday, a requirement for the 10 billion euro bailout. While the rejection of the bailout could lead to a collapse of the Cypriot banking sector and an exit from the euro zone, the European Central Bank said Tuesday it would provide liquidity.
Investors will closely watch the FOMC statement and Bernanke’s address for any discussion about the risks associated with quantitative easing. The Fed purchases $85 billion in Treasury and mortgage debt each month and has linked the length of its bond-buying program to a substantial improvement in the labor market. Recent economic data, including the latest jobs report, suggest the U.S. economy is improving and continued progress could lead to an earlier-than-expected slowing of asset purchases….”
Treasuries Rise For a Third Day As Investors Expect the Fed to Continue QE Infinity
“Treasuries advanced for a third day before the Federal Reserve starts a two-day meeting today amid speculation policy makers will decide to keep buying bonds to support economic growth.
Benchmark 10-year yields approached the lowest level in almost two weeks as Cyprus’s Defence Minister Fotis Fotiou said parliament may not vote today on a tax on bank depositsneeded to secure financial aid, fueling concern the region’s debt crisis will worsen. Fed Chairman Ben S. Bernanke said this month “premature” interest-rate increases would stifle the economy.
“Bernanke is leading the charge and continues to water down any hawkish talk,” said Barra Sheridan, a rates trader at Bank of Montreal in London. “U.S. data has been uniformly strong but the risk looking forward is that it takes a downturn. If that’s the case, yields could dip towards 1.80 percent.”
The 10-year yield dropped two basis points, or 0.02 percentage point, to 1.93 percent at 7:01 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note due February 2023 rose 7/32, or $2.19 per $1,000 face amount, to 100 5/8. The yield fell to 1.90 percent yesterday, the lowest since March 6.
The Fed will issue a statement and economic projections after concluding its two-day policy meeting tomorrow, and Bernanke will brief reporters.
“Premature rate increases would carry a high risk of short-circuiting the recovery, possibly leading — ironically enough — to an even longer period of low long-term rates,” Bernanke said in a speech in San Francisco on March 1.
Fed Buying…”
Investors Buy Up Bonds as Cyprus Bailout Causes Risk Off Trade
“Treasuries gained for a second day as an unprecedented levy on bank deposits in Cyprus threatened to reignite the euro region’s debt crisis, boosting demand for the safest assets.
Benchmark 10-year yields fell by the most in three weeks after euro-area finance ministers agreed to tax bank deposits in Cyprus to finance part of a 10 billion-euro ($13 billion) bailout for the nation. Moody’s Investors Service said the levy is negative for bank depositors acrossEurope, while Bill Gross at Pacific Investment Management Co. said it moves “risk-on” trades to the back seat. German bunds and U.K. gilts also gained, with German two-year yields falling below zero for the first time in two months.
“The demand today for safe havens is justified as we just don’t know what the outcome in Cyprus will be,” said Michael Markovich, head of global interest-rate research at Credit Suisse Group AG in Zurich. “We continue to be overweight U.S. Treasuries. Elevated risk aversion should persist in the next few weeks.”
The U.S. 10-year yield fell six basis points, or 0.06 percentage point, to 1.93 percent at 7:01 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2023 rose 17/32, or $5.31 per $1,000 face amount, to 100 19/32. The yield dropped as much as nine basis points, the most since Feb. 25.
Deposit Levy…”
Italian Bond Markets Beginning to Show Signs of Sovereign Debt Woes Again
“Chinks are showing in the Italian bond market’s resilience to the political stalemate that followed last month’s election.
Backstopped by the European Central Bank’s bond-buying pledge, Italian yields have been relatively steady at levels well below their all-time highs since the February 24-25 vote which left parties deadlocked over how to form a government.
But some potential signs of market stress are emerging.
Italian bonds paying lower rates of interest have outperformed higher-coupon paper of similar maturity in recent weeks – a phenomenon that occurs in times of heightened uncertainty, when investors take defensive positions.
“It is one of the crisis barometers,” said Commerzbank rate strategist David Schnautz. “When you have stress in the system you see certain dislocations, switches in the curve.”
While yields on the two types of bonds are similar, those offering smaller coupon payments are generally cheaper to buy, reducing the potential loss for the investor if the issuer cannot repay its debts.
A sovereign borrower with liquidity problems would also be more likely to delay coupon payments than not redeem the bond at maturity, analysts say.
The discrepancy in price is most visible at the longer end of the Italian debt curve, where the difference between coupons is also wider.
A bond maturing in August 2023 and carrying a 4.75 percent coupon was priced at 101.53 cents in the euro this week, while a November 2023 bond paying a coupon of 9 percent was priced at 134.87 cents in the euro….”
Spanish Bonds Put in a Tenth Day of Rally Making it the Largest Run Since 2005
“Spain’s bonds advanced for a 10th day, the longest run since 2005, after its borrowing costs fell at a debt sale as investors bet the European Central Bank will limit volatility caused by a political stalemate in Italy.
Benchmark Spanish 10-year yields fell to the lowest level since November 2010 after Economy Minister Luis De Guindos said yesterday he expected to see economic growth by year-end. The ECB agreed to an unlimited debt-purchase program to cap borrowing costs of highly indebted euro-area nations in September. Italian bonds climbed for the first time in three days. German bunds rose for a second day after a report confirmed inflation slowed in February.
“We have the ECB backstop and without it we’d be in a more volatile situation,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “It’s a supporting factor for the periphery,” he said, referring to the euro bloc’s most indebted members.
Spanish 10-year yields dropped four basis points, or 0.04 percentage point, to 4.72 percent at 11:02 a.m. London time. The 5.4 percent bond maturing in January 2023 rose 0.305, or 3.05 euros per 1,000 euro ($1,301) face amount, to 105.245.
Spain’s Treasury sold 5.83 billion euros of six- and 12- month securities, beating its upper goal of 5.5 billion euros for the sale, the Madrid-based Bank of Spain said. It sold six- month bills at an average yield of 0.794 percent, down from 0.859 percent on Feb. 12. The 12-month securities yielded 1.363 percent, down from 1.548 percent….”
Long Term Interest Rates Charts Suggest Rates are Turning and Beginning to Rise
“Based upon very long-term charts and commentary from Hoisington Investment Management Company, for some time we have speculated that the 30-year bond rate would continue downward to around 2%. However, the charts are showing strong technical evidence that interest rates may be turning up in the long term.
The monthly chart below shows bond rates going back to 1948, at which time long bond rates were about 2%. After the 1981 peak, rates have trended downward toward, we assumed, the historical low. Now it appears that the bottom is in and that rates are heading higher.
Note that the monthly PMO has turned up from its second most oversold level in 50 years, and has crossed up through its 10-EMA, rendering a PMO buy signal.
Zooming in on a 23-year monthly chart we can see a long-term double bottom (2008 and 2012). This compares with the lower PMO low, which sets up a reversal divergence (bullish). We can also see that yield has broken above a declining tops line drawn from the 2011 top…”
Italian Bonds Rise as EU Relaxes on Budget Requirements
“Italy’s bonds advanced for the first time in three days after European Union finance ministers opened the way for looser budget policies that may support growth.
German 10-year bunds fell as euro-area retail sales increased in January more than economists predicted, sapping demand for the safest assets. Portugal’s 10-year yields dropped to the least in more than a month after EU Economic and Monetary Affairs Commissioner Olli Rehn, in Brussels for a meeting of the bloc’s finance ministers, said the country and Ireland may get more time to repay bailout loans. Global stocks and commodities rallied on bets central banks will continue stimulus measures.
“There’s a more general risk-on sentiment today” driving Italian yields lower, said Chiara Cremonesi, a fixed-income strategist at UniCredit SpA (UCG) in London. “Bunds are weak as well. It could be that this meeting is also having some impact,” she said of the finance ministers’ gathering.
Italy’s 10-year yields fell 11 basis points, or 0.11 percentage point, to 4.77 percent at noon London time after sliding 16 basis points, the steepest decline since Feb. 25. The 5.5 percent security maturing in November 2022 gained 0.885, or 8.85 euros per 1,000-euro ($1,304) face amount, to 106.055.
The EU is considering easier repayment terms for rescue loans to Ireland and Portugal in a bid to ease their exit from aid programs, Rehn said. The nations say they deserve concessions similar to those granted to Greece last year.
Economic Strains….”
U.S. Treasury Yields Hit 5 Week Lows as Investors Seek Safety
“Treasury 10-year yields touched a five-week low as Italy moved closer to a new election, boosting demand for the safest assets, after an anti-austerity vote last week left Europe’s third-largest economy in political deadlock.
U.S. 10-year notes were little changed after a survey showing China’s services industries slowed last month sent Asian and European stocks lower. Euro-area finance ministers meet in Brussels today to discuss issues including a bailout for Cyprus. In Rome, Stefano Fassina, a top aide to Democratic Party leader Pier Luigi Bersani, said Italy may need to hold another vote this year after passing new electoral laws.
“There are a number of uncertainties like the Italian elections, the issue of Cyprus and these things bring risks to the market,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “This is the context in which bonds normally do well. We are, in the short term, bullish on Treasuries because when you look at the 10-year yield there is still scope for it to fall.”
Benchmark Treasury 10-year yields rose less than one basis point to 1.85 percent at 7:47 a.m.New York time, according to Bloomberg Bond Trader data, after reaching 1.83 percent, the lowest level since Jan. 24. The rate declined 12 basis points, or 0.12 percentage point, last week, the most since the period ended Aug. 31. The price of the 2 percent note due February 2023 fell 2/32, or 63 cents per $1,000 face value, to 101 11/32.
The 10-year rate may reach 1.80 percent in the next few weeks, Lammens said. The yield last fell to that level on Jan. 2, according to data compiled by Bloomberg.
Italian Impasse….”
Italy Manages to Cover a 6.5 Billion Euro Debt Auction, With Dropping Yields
“Italian government bonds advanced as the nation sold 6.5 billion euros of securities at a sale.
Ten-year yields fell four basis points, or 0.04 percentage point, to 4.86 percent at 10:17 a.m. London time. The rate earlier dropped as much as nine basis points to 4.81 percent.”
Italian Elections Help U.S Treasury Yield to Fall to One Month Lows
“Treasuries rose, pushing 10-year yields to a one-month low, as polls indicated the euro area’s third-largest economy, Italy, may be left with a hung parliament, stoking refuge demand.
U.S. debt gained as preliminary results from Italian elections show former Prime Minister Silvio Berlusconi may have built a blocking minority in the Senate to deny outright victory to opponent Pier Luigi Bersani. Treasuries remained higher after the U.S. sale of $35 billion in two-year notes.
“The concern is that Berlusconi will take off the austerity measures,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “It’s not set in stone, but it’s brought in heavy buying.”
The benchmark 10-year yield dropped five basis points, or 0.05 percentage point, to 1.92 percent at 1:22 p.m. New York time, according to Bloomberg Bond Trader prices, reaching the lowest since Jan. 25. The 2 percent note maturing in February 2023 added 13/32, or $4.06 per $1,000 face amount, to 100 3/4.
Auction Detail…”
PIMCO and Investco Agree That TIPS are What You Want to Own
“At a time when the bond market expects inflation to stay at about the past decade’s average, the biggest buyers of government debt say they need protection from rising consumer prices as central banks focus on growth.
Pacific Investment Management Co. and Invesco Ltd. say growing central-bank tolerance of inflation means securities with interest or principal tied to consumer prices are the ones to own. Global expectations indicated by the gap between yields on so-called linkers and government bonds reached a 21-month high of 1.70 percent, Bank of America Merrill Lynch indexes show. Economists in Bloomberg surveys forecast consumer-price gains of 2.72 percent in 2013, in line with the 10-year average.
After four years of stimulating economies, central bankers are starting to see signs of accelerating growth, spurring some bond investors to prepare for a rise in yields from record lows. Index-linked securities are favored because sovereign-debt returns are being erased by what little inflation there is.
“There’s an element of central banks, whether they say it or not, being more relaxed about allowing inflation to rise,” Paul Mueller, a London-based fund manager at Invesco Asset Management, a unit of Invesco Ltd. (IVZ), which manages $713 billion, said in a telephone interview Feb. 19. “While I don’t think we are going to see inflation escaping to very high levels, it does make sense to have protection.”
