June 19 (Bloomberg) -- Treasuries fell for the first time in three days as the Federal Reserve opens a meeting amid speculation it may do more to boost the economy and investors bet European leaders will make progress on their debt crisis.
U.S. 30-year bond yields rose from the lowest in almost two weeks as a European official signaled Greece may get a revision to the economic-performance targets set as a condition for it to receive international aid. Leaders of Group of 20 nations at a summit in Mexico are focusing their response to the financial crisis on stabilizing European banks.
“The flight-to-quality bid is cooling in the Treasury market,” Adrian Miller, a fixed-income strategist at GMP Securities LLC in New York, said in a telephone interview. “There is increasing optimism out of Europe that there will be positive momentum and support from the G-20 and EU leaders on resolving the European crisis, and an expectation the Fed is getting closer to providing some sort of additional stimulus.”
The 30-year yield climbed four basis points, or 0.04 percentage point, to 2.70 percent at 10:16 a.m. New York time after touching 2.64 percent earlier, the least since June 6. The price of the 3 percent security due May 2042 fell 7/8, or $8.75 per $1,000 face amount, to 106 2/32, according to Bloomberg Bond Trader data.
The benchmark 10-year note yield increased four basis points to 1.62 percent.
Fed Chairman Ben S. Bernanke said on June 7 that Europe’s situation poses “significant risks” to the U.S. economy and that the Fed was prepared to take action if necessary.
Operation Twist
The central bank’s so-called Operation Twist program, in which it’s selling $400 billion of Treasuries maturing in three years or less and buying an equal amount of bonds with a maturity of six years to 30 years to cap borrowing costs, is set to expire this month.
“There’s a slight increase in the odds of Fed action,” said John Briggs, a U.S. government bond strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, one of the 21 primary dealers that trade with the Fed.
The central bank will purchase as much as $2 billion of Treasuries today due from August 2022 to February 2031 as part of the program, which followed two rounds of debt purchases under quantitative easing, or QE, from 2008 through 2011.
Treasuries remained lower after Commerce Department data showed housing starts in the U.S. dropped 4.8 percent in May to a 708,000 annual pace from a revised 744,000 rate in April that was the highest since October 2008. The median forecast of 77 economists surveyed by Bloomberg News called for a 722,000 pace.
Spain sold 12-month bills at an average yield of 5.074 percent, compared with 2.985 percent at the last auction in May, and 18-month bills at an average rate of 5.107 percent, compared with 3.302 percent last month.
The nation asked for aid to rescue its lenders on June 9, becoming the fourth euro member to seek a bailout since the debt crisis began.
A first step to Greece winning an easing of its bailout terms will be when the nation’s still to-be-formed government requests modifications to the 240 billion-euro ($303 billion) rescue programs, leading to a revision of economic-performance targets sometime before September, a European official told reporters in Brussels today.
Europe floated the relief as the victor in the June 17 Greek election, Antonis Samaras of the New Democracy party, accelerated preparations for a coalition government.
Net Neutral
Treasuries investors were net neutral on the securities last week for the first time in June after raising bets on gains to a level matching their wagers on decreases, according to a survey by the primary dealer JPMorgan Chase & Co.
The proportion of net shorts, or bets the securities would fall compared with those on an advance, was trimmed to zero in the week ended yesterday, from six percentage points the previous week. The level of outright shorts dropped from 19 percent to 17 percent, equaling the level of outright longs, which rose from 13 percent a week earlier. A long position is a bet that an asset will increase in value.
“Investors remain very neutral, but the shift from last week is an increase in longs,” said Srini Ramaswamy, a strategist in New York at JPMorgan Chase. “It’s not surprising, given the macro uncertainty. Treasury yields remain a reflection of European concerns and policy there.”
