Treasuries gain as earnings renew strength of recovery doubts

Treasuries advanced as investors sought the safety of government securities as lower-than- forecast results from global corporations cast doubt about the strength of the economic recovery.

Longer-maturity debt led the gains as the Standard & Poor’s 500 Index declined for the third time in four days after disappointing earnings from companies including 3M Co. to DuPont Co. Yields on benchmark 10-year note climbed yesterday above the 200-day moving average of 1.805 percent, attracting buyers.

“We have a little bit of a technically driven rally in the Treasury market,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which oversees $12 billion in fixed income assets. “Earnings have also been pretty poor this morning. It looks like industrial earnings and the downward guidance from several companies are pretty disappointing.”

The U.S. 10-year note yield slid five basis points, or 0.05 percentage point, to 1.77 percent at 9:53 a.m. New York time, according to Bloomberg Bond Trader data. The 1.625 percent note due August 2022 gained 14/32, or $4.39 per $1,000 face amount, to 98 23/32. The all-time low rate was 1.38 percent set on July 25.

The yield touched 1.82 percent earlier, having reached 1.83 percent on Oct. 18, the highest since Sept. 18.

Spain Speculation

Treasuries were also buoyed after Moody’s Investors Service cut the ratings of five Spanish regions late yesterday and the nation’s economy shrank for a fifth quarter, adding pressure on Prime Minister Mariano Rajoy to seek European aid.

Spain’s 10-year bond yield rose five basis points to 5.54 percent after central-bank data showed the country’s gross domestic product shrank for a fifth quarter.

The U.S. is to sell $35 billion of two-year notes today, the same amount of five-year debt tomorrow and $29 billion of seven-year notes on Oct. 25.

The Federal Reserve is expected to reiterate the need for low borrowing costs at the end of a two-day policy meeting that starts today.

“There is a strong possibility the Fed will unveil more stimulus,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “News about five Spanish regions being downgraded is putting equities under pressure and also giving support to core government bonds including Treasuries today.”

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