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Treasury notes decline a third week amid optimism over greek debt bailout

Posted by seumasach on February 18, 2012

The Resolution of the euro crisis will be the trigger of the dollar crisis


18th February, 2012


Treasury notes fell for a third consecutive week amid speculation Greece will secure an aid package from European leaders, discouraging demand for the safest assets.

Yields increased the past two days as reports showed claims for U.S. jobless benefits unexpectedly dropped last week to a four-year low and an index of U.S. leading indicators rose in January. Demand waned Feb. 16 at a Treasury auction of inflation-protected securities, raising concern yields may rise at next week’s auctions of $99 billion of U.S. notes.

“The theme for the week has been generally improving U.S. economic data and middling optimism over the Greek situation, which has weighed on Treasuries,” said Larry Milstein, managing director in New York of government trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Whether policy makers can get their act together is another question, which means any selloff will be limited.”

Five-year note yields rose four basis points, or 0.04 percentage point, to 0.86 percent, according to Bloomberg Bond Trader prices. The 0.875 percent securities maturing in January 2017 fell 6/32, or $1.88 per $1,000 face amount, to 100 2/32.

Yields on benchmark 10-year notes increased two basis points to 2 percent. Thirty-year bondyields were little changed at 3.15 percent.

Minutes of the Federal Reserve’s last policy meeting on Jan. 24-25 that were released Feb. 15 showed a few members of the Open Market Committee said economic conditions may warrant more asset purchases, or quantitative easing, “before long.” Central bankers adopted a plan to hold interest rates near zero at least through late 2014 to spur growth and reduce unemployment.

Treasury Premium

The euro crisis and the Fed’s accommodative policies have lowered the 10-year note yield by 45 basis points from where it would be otherwise, according to a Goldman Sachs Group Inc. report released yesterday.

Germany, the biggest contributor to euro-area rescues, signaled this week that finance ministers may be ready to back Greece’s second bailout in two years when they meet Feb. 20 in Brussels. After a week of wrangling among euro-area officials, Chancellor Angela Merkel’s government indicated it aims to avoid splitting the timetable of the aid and a writedown of Greek debt to private bondholders and agree to the deal as one package.

“The bond market is trading as if there’s a better than 50 percent probability that a deal will get done,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “The bond market is also showing signs of growth in the U.S. as the rest of Europe may go into recession.”

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