Treasury 10-year notes rose for a fourth day before President Barack Obama meets Democratic and Republican leaders in Congress this week for negotiations to avert the so-called fiscal cliff.
Benchmark 10-year yields fell to the lowest level in two months as European policy makers and the International Monetary Fund clashed over the length of time Greece will be given to reduce it debt levels. The Federal Reserve will today buy as much as $5.25 billion of Treasuries maturing in November 2018 to August 2020 as part of its program to replace shorter-maturity notes in its holdings with longer-dated bonds to reduce longer-term borrowing costs.
Treasuries are rallying as “there’s a lot of pessimism around the U.S. fiscal cliff and Greece,” said Barra Sheridan, a rates trader at Bank of Montreal in London. “The IMF are correct to dig their heels in over Greece. However, we’ve already had a decent rally in Treasuries, and I wouldn’t buy them here.”
The 10-year yield declined two basis points, or 0.02 percentage point, to 1.59 percent at 10:43 a.m. in London after dropping to 1.57 percent, the lowest level since Sept. 5. The 1.625 percent note due in November 2022 rose 7/32, or $2.19 per $1,000 face amount, to 100 3/8.
The bond market was shut yesterday for Veterans’ Day.
Obama is due to meet with Republican and Democrat leaders from the House and Senate on Nov. 16. Ten-year yields have fallen about 17 basis points since the Nov. 6 re-election of the president, who supports the Fed’s plan to spur the economy through bond purchases.
The fiscal cliff stems from a standoff between Obama and Congress over how to curb soaring U.S. debt through a mix of tax-code changes and reduction in federal spending. Without new legislation, a combined $607 billion in tax increases and spending cuts will take effect starting in January.
“We’re cognizant of the knee-jerk market reaction that Obama’s win raises the chance of messy fiscal negotiations and a more pro-active Fed,” said Sebastian Mackay, an investment director at Standard Life Investments Ltd. in Edinburgh. ‘However we see this as a move to oppose.” Standard Life, which oversees $250 billion, holds fewer Treasuries than recommended in benchmark indexes the company follows, Mackay said.
IMF Managing Director Christine Lagarde yesterday took issue with a decision by euro-area chiefs to postpone the goal of getting Greece’s debt down to a “sustainable” level of 120 percent of gross domestic product by two years, until 2022.
“Debt sustainability of Greece has to be measured in 2020,” Lagarde said. “We clearly have different views. What matters at the end of the day is the sustainability of the Greek debt.”
Economists say a report this week will show consumer-price inflation stayed higher than Treasury yields.
U.S. consumer prices excluding food and energy gained 2 percent in October from a year ago, according to the median forecast of economists surveyed by Bloomberg News before the data is released Nov. 15. A similar gauge for producer prices climbed 2.4 percent, a separate Bloomberg survey showed before the report tomorrow.
The so-called real yield on U.S. 10-year notes, or the difference between their yield and the current rate of inflation, was minus 42 basis points.
“Treasuries’ real yields are negative and that helps sap demand for the securities,” said Makoto Suzuki, a senior bond strategist in Tokyo at Okasan Securities Co. “It raises the question whether Treasury yields can go lower from here.”