• News
  • Finance

Treasuries Rise 3rd Day on Concern Fiscal-Cliff Talks Will Stall

Nov. 28 (Bloomberg) -- Treasuries advanced for a third day on speculation talks to avert the U.S. fiscal cliff of tax increases and spending reductions are making little headway, underpinning demand for the safest assets.

Ten-year yields dropped to the lowest level in a week as corporate leaders prepared to meet with President Barack Obama today after Senate Majority Leader Harry Reid yesterday lamented the lack of progress toward a deal. The U.S. is scheduled to sell $35 billion of five-year notes today after demand at a two- year auction yesterday matched a record high. Volatility in Treasuries dropped to the least in five years.

“The fiscal cliff may bring yields lower if we don’t see a solution,” said Michael Markovich, head of global interest- rates research at Credit Suisse Group AG in Zurich. “There is demand for Treasuries and they will continue to be part of any big portfolio because of their safe-haven appeal. I do not see any big impulse to shift yields in either direction.”

The 10-year yield fell two basis points, or 0.02 percentage point, to 1.62 percent at 7:22 a.m. in New York after dropping to 1.61 percent, the least since Nov. 20, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 gained 6/32, or $1.88 per $1,000 face amount, to 100 2/32.

‘A Disappointment’

Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein is among executives scheduled to make their case at the White House today regarding a solution to the fiscal cliff. Congress and the President are negotiating on ways to avoid the $607 billion in tax increases and spending cuts scheduled to begin in January.

“There’s been little progress with the Republicans, which is a disappointment to me,” Reid, a Nevada Democrat, told reporters yesterday in Washington.

Treasuries have returned 2.5 percent this year, after gaining 9.8 percent in 2011, according to Bank of America Merrill Lynch indexes.

“A low-yield environment is in place,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 21 primary dealers obliged to bid at U.S. debt sales. “We have some concerns about the fiscal cliff, and that is supportive for Treasuries.”

Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, declined to 51.7 yesterday, the lowest level since May 2007.

Note Sale

The U.S. five-year notes scheduled for sale today yielded 0.65 percent in pre-auction trading. The offering is the second of three this week totaling $99 billion.

At yesterday’s $35 billion sale of two-year notes, investors bid for 4.07 times the amount allotted, matching the record high set in November 2011. The U.S. will sell $29 billion of seven-year securities tomorrow.

Today’s sale should “see reasonably strong demand,” Marc Ostwald, a rates strategist at Monument Securities Ltd. in London, wrote in a note to clients. “Particularly as the latest news on the fiscal cliff negotiations shows no signs of the two sides getting any closer.”

Data showing improvement in the U.S. economy may send Treasury prices down, said Park Sungjin, head of asset management at Meritz Securities Co. in Seoul. Park said he is considering betting against, or shorting, five-year notes.

“I’m focused on the current recovery, especially in the housing market,” said Park, who oversees the equivalent of $7 billion of assets.

Home Sales

New home sales rose to a two-year high in October, according to a Bloomberg News survey of economists before the Commerce Department releases the figures at 10 a.m. New York time. The Fed is scheduled to issue its Beige Book economic report at 2 p.m. in New York.

The Commerce Department will increase its estimate of third-quarter economic growth to 2.8 percent from 2 percent when it issues the data tomorrow, a separate Bloomberg survey showed.

The Fed plans to purchase as much as $2.25 billion of Treasuries maturing from February 2036 to November 2042 today, according to the Fed Bank of New York’s website. It is also scheduled to buy as much as $5.25 billion of securities due from November 2018 to November 2020, the website shows.

The central bank is seeking to put downward pressure on yields, after buying $2.3 trillion of Treasuries and mortgage- related bonds since 2008 in two rounds of quantitative easing, or QE. It said Oct. 24 it would extend its stimulus by purchasing $40 billion of home-loan securities a month until the labor market improves “substantially.”

The Fed is also selling shorter-term Treasuries from its holdings and buying those due in six to 30 years, under a program scheduled to end next month.

Fed Bank of Chicago President Charles Evans said yesterday the central bank should keep interest rates near zero until unemployment falls to 6.5 percent or below as long as inflation is under 2.5 percent. The unemployment rate was 7.9 percent in October and consumer prices rose at an annual pace of 2.2 percent, according to the Labor Department.

User Response
0 UserComments