Treasuries decline as Greece debt exchange eases refuge demand

‘Rethinking the Need’

Forward repo rates also rose “which reinforces the perception that repo rates will continue to move higher,” Silliman said. “After operation twist the Fed has very little securities in the front end, so sterilizing with reverse repos or term deposits would be a very logical option.”

“People believe the Fed is rethinking the need for additional liquidity at this point,” said James Collins, an interest-rate strategist in the futures group at Citigroup Global Markets Inc. in Chicago, a primary dealer.

U.S. 10-year notes have returned 0.02 percent this year through yesterday, according to a Bank of America Merrill Lynch index. Treasuries of all maturities have lost 0.1 percent, another Merrill Lynch index showed, compared with a full-year gain of 9.8 percent in 2011.

Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, rose yesterday for the first time in three days, increasing to 75.8. About $239 billion of Treasuries changed hands yesterday through ICAP Plc, the world’s largest interdealer broker. The average for the past five years is $269 billion.

Debt Swap

European banks and insurers including BNP Paribas SA, Commerzbank AG and Assicurazioni Generali SpA are among bond holders that have pledged to accept the Greek debt-swap offer. That brings the total so far to at least 120 billion euros ($157 billion), based on data compiled by Bloomberg from company reports and government statements.

The goal is to reduce the 206 billion euros of privately held Greek debt by 53.5 percent and turn the tide against Europe’s two-year-old crisis. The government is seeking at least 75 percent participation, and the swap offer expires tomorrow. The government said it will use collective-action clauses to compel holders of Greek-law bonds to accept the swap if enough holders consent to the deal.

“Adding up the commitments to participate in the Greek PSI, it is now clear that the CAC hurdles will very likely be cleared,” Christoph Rieger, Commerzbank AG head of fixed-income strategy in Frankfurt, said in a note today.

Nonfarm Payrolls

U.S. companies added 216,000 workers to their payrolls in February, according to data from ADP. The median projection of economists surveyed by Bloomberg News called for an advance of 215,000.

The Labor Department will report this week that U.S. nonfarm payrolls added 210,000 jobs last month, according to economists in a separate survey, compared with 243,000 in January and 203,000 in December.

A bigger increase in payrolls would “put more pressure on long-term Treasuries because the economy’s getting better,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “The risk- reward ratio is now skewed to being short Treasuries.” A short bet is a wager the value of a security will fall.

The Fed bought $1.97 billion of Treasuries today maturing from February 2036 to May 2041. The central bank is in the process of swapping $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs.

The U.S. will announce tomorrow the size of three note-and- bonds auctions next week. It will probably sell $32 billion of three-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds, according to an estimate by Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.

Bloomberg News

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