The Tale Treasuries Tell

Treasuries Tumble on Supply, Europe’s Pledge to Support Greece

By Susanne Walker
Feb. 13 (Bloomberg) -- Treasuries fell, with 10-year notes dropping for the first week this year, as the government sold a record-tying $81 billion in notes and bonds and Europe’s pledge to aid Greece dulled the haven appeal of U.S. debt.

Ten- and 30-year yields rose the most in seven weeks as sales of the securities drew lower-than-average demand. The European Union said it was prepared to take action to support Greece, while leaving open how it might respond to a fresh wave of speculative attacks against member nations that are also struggling to cut deficits. U.S. consumer prices rose in January, a report is forecast to show next week.

“With all of the issues the EU had with the PIGS, one would think we would see a continued flight to quality,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. He used an abbreviation for Portugal, Ireland, Greece and Spain.

The yield on the benchmark 10-year note climbed 13 basis points, or 0.13 percentage point, the most since the five days ended Dec. 25, to 3.69 percent on the week. It touched 3.76 percent on Feb. 11, the highest level since Jan. 14. The 30-year bond yield increased 13 basis points to 4.65 percent. It touched 4.71 percent on Feb. 11, also the highest since Jan. 14.


With the ever increasing amounts of Treasuries coming on the market, we can expect that yields will need to rise to attract bidders.  While this is our medium to long term outlook, we also expect that yields will be flat or even fall in the short run only when the market widely recognizes the promised recovery is not materializing.
In short, we expect flat to falling yields over the next several months, and after a year or so, rapidly rising yields as the bond market implodes.  The timing of these events depend very much on how long Europe can drag out the sovereign debt crisis.