March 29 (Bloomberg) -- Treasuries rose, pushing 10-year yields to a two-week low, as investors sought the safest assets on concern Europe’s debt crisis is poised to flare again.
Bonds stayed higher as a $29 billion auction of seven-year Treasuries drew the highest demand since August from a category of investors that includes foreign central banks. Greece will probably have to restructure its debt again, a Standard & Poor’s official said yesterday. Federal Reserve Chairman Ben S. Bernanke said this week the economic recovery isn’t assured.
“The uncertainty surrounding the situation in Europe has moved back toward the forefront,” said Chris Ahrens, head interest-rate strategist in Stamford, Connecticut, at UBS AG, one of 21 primary dealers that are obligated to bid in U.S. debt auctions. “We’ve seen a little bit of pressure in the risk markets. We’re back to risk-off.”
Benchmark 10-year note yields dropped four basis points, or 0.04percentage point, to 2.16% at 3:16 p.m. in New York, according to Bloomberg Bond Trader prices. They touched 2.15%, the lowest level since March 14. The 2% securities maturing in February 2022 advanced 10/32, or $3.13 per $1,000 face amount, to 98 18/32. The yields increased two basis points yesterday.
The yield on the current seven-year note fell four basis points to 1.54% and reached 1.53%, also the lowest level since March 14.
Stocks slid, with the Standard & Poor’s 500 Index down 0.3% after falling earlier as much as 1%.
Treasuries have lost 1.2% this quarter in the biggest three-month decline in more than a year, according to Bank of America Merrill Lynch indexes, as the U.S. economy showed signs of improvement. They dropped 2.7% from October through December of 2010.
The declines were led by securities maturing in 10 years or more, which are down 5.1% since Dec. 31, the indexes show. The global government bond market has returned 0.4% since then, while the global broad bond market is up 1.1%, the data show.
The 10-year yield will climb to 2.56% by year-end, according to the average forecast in a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings. The yield has averaged 3.86% over the past decade.
Treasuries gained earlier after Moritz Kraemer, head of sovereign ratings at S&P, said another debt restructuring of the outstanding debt of Greece, where the euro region’s debt crisis began in 2009, “may be down the road” and may involve bailout partners such as European governments. Kraemer spoke late yesterday at an event in London.
European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros ($1.3 trillion) to keep the debt crisis at bay, according to a draft statement for finance ministers. Euro-area officials meet tomorrow in Copenhagen to discuss the measure.
“While the situation in the euro region may have improved, it’s far from over, and this concern should continue to underpin demand for haven assets like Treasuries,” said Matteo Regesta, a senior fixed-income strategist at BNP Paribas SA in London.
Bernanke said today the pace of recovery from the recession has been “extremely sluggish,” while action by the world’s central banks helped prevent another Great Depression. He made the comments in slides prepared for a lecture to students at George Washington University.
U.S. policy makers don’t rule out further options to support growth, Bernanke said on March 27, according to a transcript of an ABC News interview provided by the network. The central bank bought $2.3 trillion of debt under two rounds of quantitative easing from December 2008 to June 2011.
The Fed sold $8.6 billion of Treasuries today maturing from July 2014 to March 2015 as part of a program to replace $400 billion of shorter-term debt in its holdings with longer maturities to cap borrowing costs.
Bonds gained even after initial claims for U.S. jobless benefits fell. Applications fell 5,000 in the week ended March 24 to 359,000, the lowest since April 2008, the Labor Department reported.
Today’s auction was the last of three note offerings this week totaling $99 billion. The seven-year securities drew a yield of 1.590%, compared with a forecast of 1.572% in a Bloomberg News survey of nine primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.72, versus an average of 2.86 for the previous 10 sales.
“The market is holding up here; there are definitely buyers of Treasuries out there,” said Justin Lederer, an interest-rate strategist in New York and the primary dealer Cantor Fitzgerald LP.
Indirect bidders, the investor class that includes foreign central banks, purchased 42.8% of the notes. That compared with an average of 40.2% for the past 10 offerings and was the highest since reaching 51.7% in August. Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, bought 13.4%, versus an average of 13% at the past 10 sales.
The securities drew a yield of 1.418% in February at the last sale and reached a record low of 1.359% at the January auction.
The government sold $35 billion of five-year debt yesterday at a yield of 1.040% and the same amount of two-year securities on March 27 at 0.340%. This week’s note auctions will raise $39.5 billion of new cash as maturing securities held by the public total $59.5 billion.
The gap between the yields on 10-year Treasury Inflation- Protected Securities and conventional U.S. debt narrowed for a seventh day to 2.31percentage points in its longest slide since March 2010. The figure, called the 10-year break-even rate, reflects traders’ outlook for inflation over the next decade.
The five-year, five-year forward break-even rate, the Fed’s preferred measure for determining inflation expectations and which projects the pace of consumer-price increases starting in 2017, fell to 2.71% on March 26 from 2.78% on March 19, the highest level since August. The average for the past decade is 2.76.