Tags: Bond | Gains | Debt | Economy

US 30-Year Bond Gains Most in 1 Year on Debt Deal, Economy

Tuesday, 02 August 2011 02:46 PM

Treasury 30-year bonds rallied the most in more than a year as the Senate approved a deal to boost the debt limit and a government report showed consumer spending unexpectedly fell in June, reinforcing speculation the economy is slowing.

U.S. debt rose as President Barack Obama signed a bill to raise the U.S. debt limit by at least $2.1 trillion, averting by hours a first-ever U.S. financial default, while investors warned the nation’s credit rating may be cut. Yields on Italian and Spanish bonds climbed as investors sought a refuge from Europe’s sovereign-debt turmoil.

“There’s so much uncertainty out there and negative economic news that we’ve seen continued moves in Treasurys,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The senate vote wasn’t a shocking move. What’s going on is a lot of nervousness.”

Yields on 30-year bonds dropped 15 basis points, or 0.15 percentage point, to 3.93 percent at 2:16 p.m. in New York, according to Bloomberg Bond Trader prices, the biggest gain since May 2010. The 4.375 percent securities maturing in May 2041 rose 2 20/32, or $26.25 per $1,000 face amount, to 107 22/32.

The 10-year note yields touched 2.60 percent, the lowest since Nov. 9, the day the central bank started its $600 billion round of Treasury purchases, which ended in June. The yields on two-year notes decreased four basis points to 0.32 percent.

Yield Curve

The extra yields on 10-year notes compared with two-year securities contracted to 2.33 percentage points, the narrowest since December.

Rates on the $90 billion in six-month bills due Aug. 4 dropped today to 0.086 percent. The rate rose to 0.3 percent on July 29, the highest since they were issued in February, on concern Congress wouldn’t raise the debt limit by the deadline of today.

“The market is ready to move on,” said Anthony Cronin, a trader in New York at Societe Generale SA, a primary dealer. “More customers are coming into the bill market now that default has been taken off the table.”

Investors also sought the safety of government debt as the yield on 10-year Italian bonds rose to 6.25 percent, the most since 1997, amid concern slowing growth will hamper efforts to tame European debt loads. The yield on Spanish 10-year debt climbed to 6.46 percent, the most since 1997. German 10-year bund yields dropped to an eight-month low.

Auction Outlook

Treasury officials will keep the total of next week’s auctions of three-, 10- and 30-year securities at $72 billion as the government is close to passing a bill to raise its debt limit, primary dealers forecast.

The U.S. will sell $32 billion of three-year notes, $24 billion of 10-year debt and $16 billion of 30-year bonds next week, according to 16 of the primary dealers, which are required to bid in Treasury auctions. The amounts are the same as the grouping of auctions of these maturities sold in May.

“It’s not clear that they necessarily need to raise or decrease the size of the auction, so leaving it the same is the best way to go for now,” said Thomas Simons, a government debt economist in New York at Jefferies Group Inc., a primary dealer.

The Senate voted 74-26 for the measure, which raises the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years. The House passed the plan yesterday.

Gross on Deficit

Bill Gross, who runs the world’s biggest bond fund, at Pacific Investment Management Co., said the compromise reached by Congress won’t make a “significant dent” in the deficit.

“In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at net present cost,” Gross wrote in a monthly investment outlook posted on the Newport Beach, California-based company’s website today.

Standard & Poor’s placed the U.S. AAA rating on “CreditWatch” July 14, saying there’s a 50 percent chance it would be cut within 90 days even if an agreement is reached by the deadline. S&P said it needs to see “a credible solution to the rising U.S. government debt burden.”

Consumer purchases decreased 0.2 percent in June, after a 0.1 percent gain the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November and the savings rate climbed.

Employers failed to create enough positions in July to reduce joblessness, a separate survey showed before the Labor Department’s payrolls report Aug. 5.

“The data is disappointing,” Cronin said. “It reinforces the weak economic news we’ve gotten in the last week. The data will help to defend against any dip in prices.”

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Treasury 30-year bonds rallied the most in more than a year as the Senate approved a deal to boost the debt limit and a government report showed consumer spending unexpectedly fell in June, reinforcing speculation the economy is slowing.U.S. debt rose as President Barack...
Tuesday, 02 August 2011 02:46 PM
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