By Wes Goodman – Sep 19, 2011 5:30 AM GMT+0100
Treasury 10-year futures rose by the most in a week on concern Greece is heading for default, increasing demand for the relative safety of U.S. debt.
Contracts advanced for a second day after Prime Minister George Papandreou canceled a U.S. visit, saying he needs to be at home as he works to receive an international bailout payment. Speculation the Federal Reserve will announce plans to buy long- term Treasuries following a two-day policy meeting that starts tomorrow is also driving demand for U.S. government securities.
Futures for December delivery advanced 17/32, or $5.31 per $1,000 face amount, to 130 3/32 in electronic trading at the Chicago Board of Trade as of 12:10 p.m. in Singapore. The last time they rose as much was Sept. 9. Financial markets were closed in Japan for a public holiday .
“Investors are focused on the euro-area crisis,” said Zeal Yin, a money manager at Taipei-based Shin Kong Life Insurance Co., Taiwan’s second-largest life insurer with the equivalent of $40.6 billion in assets. “The core problem is still Greece.” Treasury yields will decline as investors seek the most secure holdings, he said.
Ten-year notes yielded 2.05 percent at the end of last week, according to Bloomberg Bond Trader prices. The record low was 1.877 percent set Sept. 12. Shin Kong is favoring bonds issued by Indonesia, Brazil and Mexico because they offer higher rates than Treasuries, Yin said.
The MSCI Asia Pacific excluding Japan Index of shares fell 2 percent, snapping a two-day gain and helping drive demand for the safest assets.
Greece is trying to meet demands from international and European Union partners to allow the release of a loan that will allow it to stave off default. Investors concerned that Italy, Spain and Portugal will also have trouble paying their debts pushed yields higher this year.
The plunge in U.S. 10-year rates has made government securities expensive to some investors.
“They’re not cheap,” said Hans Goetti, the Singapore- based chief investment officer for Asia at Finaport Investment Intelligence, a Zurich-based money manager that oversees the equivalent of $1.59 billion. “The fiscal deficit brings an oversupply of Treasuries.” Slowing U.S. economic growth will push yields lower, Goetti said.
President Barack Obama will call today for $1.5 trillion in tax increases over the next decade as part of a plan to cut the deficit, administration officials said. The stance puts Obama in conflict with Republican congressional leaders including House Speaker John Boehner, who last week said his party would not accept higher taxes. Obama has increased the U.S. marketable debt to a record $9.52 trillion.
The 10-year yield will advance to 2.96 percent by the end of September 2012, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
Wall Street’s biggest bond traders are stockpiling Treasuries on speculation the Fed will buy longer-term debt to spur the faltering economy. The 20 primary dealers held $15.1 billion of Treasury securities due in more than one year as of Sept. 7, reversing a $75 billion bet against the debt on May 6, Fed data show.
The majority of the companies expect the central bank to announce some type of debt-purchase plan, according to a Bloomberg News survey. U.S. notes due in 10 years or more returned 17 percent this quarter, the most since the last three months of 2008, as unemployment holds above 9 percent and economic growth slows.
“The problems are endless” for the economy, William O’Donnell, the head U.S. government bond strategist in Stamford, Connecticut at RBS Securities Inc., a primary dealer, said in a Sept. 13 telephone interview. “What will surprise people is how long this period lasts of very, very low rates.”
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