Treasuries rose for the first time in four days amid investor concern that disagreements over budget rules for new European aid may hinder a resolution to the region’s debt crisis, stoking demand for refuge.
U.S. government debt extended gains as the Labor Department reported that U.S initial jobless claims rose more than forecast. Ten-year note yields slipped from a four-week high as European Union leaders gathered for a two-day meeting in Brussels. Thirty-year yields slid the most since Oct. 12 after German Chancellor Angela Merkel said Greek reforms were moving at a “snail’s pace.”
“Jobless claims have been on an improving trend but they’re still high relative to history,” Padhraic Garvey, head of developed markets debt at ING Groep NV in Amsterdam, said before the report. “We’ve had a reasonably big move in Treasuries over the past couple of days and this is just a slight setback today.”
The benchmark 10-year yield fell three basis points, or 0.03 percentage point, to 1.79 percent at 8:34 a.m. New York time, according to Bloomberg Bond Trader prices after touching 1.82 percent, the most since Sept. 19. The 1.625 percent note due August 2022 gained 7/32, or $2.19 per $1,000 face amount, to 98 1/2.
Yields on 30-year bonds fell four basis points to 2.96 percent after climbing above 3 percent yesterday for the first time since Sept. 19.
The benchmark note rate faces a level of so-called resistance at 1.81 percent, the 200-day moving average, according to Craig Collins, managing director of rates trading at Bank of Montreal in London.
Jobless Claims
Jobless claims increased by 46,000 to 388,000 in the week ended Oct. 13 from a revised 342,000 the prior period that was the lowest since February 2008, Labor Department figures showed today in Washington. The median forecast of 49 economists surveyed by Bloomberg called for a rise in claims to 365,000.
Exactly three years after Greece touched off the financial crisis by revealing a bigger-than-expected budget deficit, leaders will gather today to discuss joint banking supervision and options for closer economic and fiscal union. Included is a proposal for pooling euro-area debt that is supported by France, Spain and Italy and rejected by Merkel.
Financial aid without conditions attached has in some cases frustrated the drive to streamline economies, “and therefore joint liability is the wrong answer,” she told German lawmakers in Berlin. What is needed is “exactly this kind of dedicated solidarity.”
The U.S. plans to auction $7 billion of 30-year Treasury Inflation Protected Securities, with the securities poised to draw a record-low yield.
The yield on 30-year TIPS fell three basis points to 0.48 percent. The previous sale of the securities on June 12 attracted an auction rate of 0.52 percent, the least since the government began selling them in 1998.
Investors bid for 2.64 times the amount of debt available in June, up from 2.46 times in February.
Inflation protection isn’t the only reason to buy the bonds. Like all U.S. government debt, the securities are a haven for investors seeking safety, which can explain why they gain even as inflation stays below its 10-year average.
The securities are also an alternative to conventional Treasuries whose yields are approaching record lows.
Price Expectations
The difference between rates on 30-year bonds and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, shrank one basis point to 2.46 percentage points. The 10-year average is 2.47 percentage points. TIPS have returned 6 percent in 2012, versus 1.4 percent for conventional Treasuries, according to Bank of America Merrill Lynch indexes.
The U.S.’s fiscal position has put its debt rating at risk, Scott Mather, head of global portfolio management at Pacific Investment Management Co., which has $1.82 trillion in assets, said in Wellington.
“The U.S. will get downgraded,” Mather said. “It depends on what the end of the year looks like, but it could be fairly soon after that.” Pimco is based in Newport Beach, California, and runs the world’s biggest bond fund.
