U.S. 10-year yields trade close to record lows on Europe concern

Scarce Debt

While Treasury 10-year note yields approach record lows, they’re cheap compared with AAA debt of other nations, helping trigger record demand at U.S. bond auctions even in a fourth year of $1 trillion budget deficits.

Yields on the benchmark security are 24 basis points higher than the average for comparable debt of nations from Germany to Australia, above the average of 12 basis points in the past year, data compiled by Bloomberg show. The gap between U.S. notes and German bunds widened to 37 basis points. As recently as November, bunds yielded 34 basis points more than Treasuries.

“Looking at the spectrum of opportunities in safe-haven assets, yields in 10-year Treasuries don’t really look that bad,” Gregory Whiteley, who manages investments in government debt at Los Angeles-based DoubleLine Capital LP, which has $35 billion in assets, said in a May 25 telephone interview.

Total Borrowing

Even after boosting the amount of marketable debt outstanding to more than $10 trillion from $4.34 trillion in mid-2007, the Treasury is attracting record demand at auctions. The cost to President Barack Obama’s administration of financing a fourth straight deficit has never been lower. The extra yield investors receive on Treasuries is an added benefit for investors seeking a haven from Europe’s sovereign debt turmoil.

The central bank plans to sell as much as $8.75 billion of Treasuries due from June 2014 to May 2015 today, according to the Fed Bank of New York’s website. The sales are part of its program to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of June to support the economy by keeping down borrowing costs.

The U.S. added 150,000 jobs in May, after a gain of 115,000 in April, based on a Bloomberg News survey before the Labor Department issues the figures on June 1.

The Conference Board index of consumer confidence rose to 69.5 in May from 69.2 in April, a report today will show, based on survey estimates.

Bloomberg News

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