Treasuries gain on Greek debt concern as Euro-area GDP shrinks

Europe in spotlight

March 6 (Bloomberg) -- Treasuries rose, pushing 10-year note yields to the lowest level in almost a week, as concern Europe’s sovereign-debt crisis will weigh on global growth spurred demand for a refuge.

Yields fell as Europe’s economy contracted in the fourth quarter and investors weighed Greece’s chances of persuading creditors to agree to a bond swap under its private-sector involvement plan. Spain said last week it would overshoot its deficit target.

“Everyone’s still focused on Greece,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It’s a reflection of the on-going uncertainty related to the process.”

Yields on 10-year notes decreased six basis points, or 0.06 percentage point, to 1.95 percent at 9:44 a.m. New York time, according to Bloomberg Bond Trader prices. They touched 1.94 percent, the lowest level since Feb. 29. The 2 percent securities maturing in February 2022 rose 18/32, or $5.63 per $1,000 face amount, to 100 15/32.

Yields on 30-year bonds tumbled seven basis points to 3.08 percent, also the lowest since Feb. 29.

The Standard & Poor’s 500 Index fell 1.2 percent in its third straight day of losses, and the Stoxx Europe 600 index of shares dropped 2.1 percent.

Neutral Positions

Investors in Treasuries were less optimistic this week for higher prices and increased neutral positions, a survey by JPMorgan Chase & Co. showed.

The percentage of net longs in the survey, or bets that prices will climb, slipped to 12 in the week ended yesterday, from 13 percent in the previous week. The percentage of longs in the firm’s “all clients” survey dropped to 25, from 26 the previous week. About 62 percent of the clients surveyed were neutral, up from 60 percent the previous week.

U.S. 10-year note yields are about 30 basis points from a record low 1.67 percent reached on Sept. 23 as European officials struggle to put an end to the debt crisis that has roiled financial markets for more than two years.

The 17-nation euro-area economy shrank 0.3 percent in the last three months of 2011, the European Union’s statistics office said today, matching the median of 34 estimates in a Bloomberg News survey.

Involuntary Restructuring

The European Central Bank, the International Monetary Fund and the European Commission are preparing for an involuntary restructuring of Greek debt as the group assumes that an insufficient number of bondholders will sign up for proposed writedowns, Financial Times Deutschland reported, citing unidentified people.

Euro-area finance ministers will decide on March 9 on the use of collective-action clauses to force losses on Greek debt if Greece fails to reach the target quota of 90 percent participation by private investors, the German newspaper said.

Spain’s Prime Minister Mariano Rajoy will address a finance industry conference today as the European Union waits for an explanation of his decision to exceed the limit set for the nation’s budget deficit this year. Rajoy said on March 2 it would be 5.8 percent of gross domestic product instead of the 4.4 percent target agreed to previously with the EU.

The European Commission called yesterday for a “full picture” of Spain’s 2012 budget plans before making a judgment on the nation’s compliance with EU rules.

Investor appetite for riskier assets waned after China cut growth projections yesterday, Credit Agricole SA said in a report. The nation pared its annual economic growth target to 7.5 percent from an 8 percent goal in place since 2005.

U.S. Growth

U.S. economic growth will quicken to 2.2 percent in 2012 from 1.7 percent in 2011, Bloomberg News surveys of analysts show. The euro-area economy will shrink 0.4 percent this year, according to the responses.

The Federal Reserve may buy as much as $4.25 billion of U.S. debt due from March 2018 to February 2020 today, according to the Fed Bank of New York website. The central bank is in the process of swapping $400 billion of shorter-maturity Treasuries in its holdings with longer-term bonds to cap borrowing costs. It meets on March 13 on policy.

“Further easing from the Fed is still very possible this year, albeit through mortgage-backed securities purchases rather than Treasuries,” Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London, wrote in an e-mailed report dated yesterday. Yields “could still reach 1.5 percent before the year ends.”

Dallas Fed President Richard Fisher said yesterday he opposes additional central bank purchases of securities and urged market participants to get ready to become less dependent on monetary easing.

Inflation Bets Cut

Yields indicate investors cut bets on inflation over the past week. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices during the life of the debt, narrowed to 2.18 percentage points from 2.27 percentage points on Feb. 28.

Five-year inflation swaps, which allow investors to exchange fixed-interest rates for returns equivalent to the consumer price index, slid to 2.35 percent from 2.46 percent a week ago. The five-year average is 2.11 percent.

U.S. payrolls increased by 210,000 last month after rising by 243,000 in January, the most in nine months, and 203,000 in December, according to the median projection of 83 economists surveyed by Bloomberg News before the Labor Department’s report on March 9. It would mark the strongest three-month stretch in almost a year. The jobless rate probably held at an almost three-year low of 8.3 percent.

The 10-year note yield will advance to 2.53 percent by year-end, according to average forecast in a Bloomberg News survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.

Bloomberg News


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