Treasury Yields Drop to Year Low as European Crisis Intensifies
I think a team of Harvard MBA's business consultants would recommend to any President that this is the time to use this inexpensive money to boost the economy, retrain our unemployed, encourage the young to get further education and rebuild our failing infrastructure.
But current politics will not allow our leaders to take the money everyone is willing to invest in us.
[B]Treasuries rose, pushing yields to the lowest levels this year,[/B] as France was stripped of its top credit rating and talks to restructure Greek’s debt stalled, boosting demand for the safety of U.S. government debt.
The yield on the benchmark 10-year note touched the lowest level since Dec. 20 yesterday and the [B]Treasury drew record demand at three- and 10-year note auctions this week. A model created by economists at the Federal Reserve that includes expectations for interest rates, growth and inflation indicates 10-year notes are the most overvalued on record.[/B]
“The story is still about mostly what’s going on in Europe,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “You still have nervousness and that’s bringing a good flight to quality trade here in the states.”
The benchmark 10-year note yield dropped nine basis points, or 0.09 percentage point for the week, to 1.87 percent yesterday in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 rose 27/32, or $8.44 per $1,000 face amount, to 101 16/32. The yield dropped six basis points yesterday.
The so-called term premium model reached a record negative 0.7 percent yesterday, compared with the average of positive 0.60 percent the past decade. The previous record was negative 0.67 percent reached Sept. 22. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
Germany, Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands had their ratings affirmed by S&P as France lost its AAA rating. France was cut to AA+ and the rating has a negative outlook, S&P said in a statement.
Cyprus, Italy, Portugal, and Spain were cut by two notches S&P said. The long-term ratings on Austria, Malta, Slovakia, and Slovenia were cut one notch.
Volatility in the Treasury market is near its lowest level in almost seven months. Bank of America Merrill Lynch’s MOVE index (MOVE), which measure price swings in Treasuries based on prices of over-the-counter options maturing in two to 30 years, dropped to 77.1 basis points on Jan. 12, the lowest point since June 13. The 2011 average was 94.14, with a high of 117.8 on Aug. 8 and a low of 71.5 on May 31.
Treasury market volumes remain below average. About $268 billion of Treasuries changed hands yesterday through ICAP Plc, the world’s largest interdealer broker, below the one-year average of $282 billion.
[B]The U.S. sold $66 billion in Treasuries this week, including $13 billion of 30-year bonds at lower-than-average demand on Jan. 12 after record-setting auctions the prior two days.[/B]
The $21 billion sale of 10-year notes Jan. 11 was sold at a [B][U]record low yield of 1.90 percent amid[/U][/B] early speculation that France may lose its top credit rating. The bid-to-cover ratio was 3.29, versus an average of 3.11 for the past 10 auctions.
The government attracted record demand at its $32 billion sale of three-year notes on Jan. 10. That auction’s bid-to-cover ratio was 3.73, the highest since at least 1993, when the government began releasing the data.
“It’s one of the only things left for people to buy if you are afraid of Europe falling apart, so it’s putting tremendous amount of bids into our market,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “We’ve definitely benefited from that.”