By Susanne Walker and Paul Dobson - Jul 23, 2010
Treasury two-year note yields were near a record low for a fourth day on speculation stress tests of European lenders won’t prove they’re strong enough to weather a government default.
Ten-year yields fell from a one-week high after a draft document said the 91 banks being stress-tested were only examined on European sovereign debt losses for the bonds they trade, rather than those they hold to maturity.
“There’s a lot of concern about these stress tests -- no one in the U.S. knows what to expect,” said Ray Remy, head of fixed income in New York at Daiwa Securities Group Inc., one of 18 primary dealers that trade with the Federal Reserve. “If they are only going to measure the losses only to traded bond portfolios, then that’s not what everyone thought was going to be measured.”
The two-year note yielded 0.57 percent 10:37 a.m. in New York, according to BGCantor Market Data, after earlier dropping to a record 0.5516 percent. The 0.625 percent security due June 2012 traded little changed at 100 3/32.
The 10-year note yielded 2.95 percent after earlier rising to 3 percent, the highest level since July 16. It touched 2.85 percent on July 21, the lowest level since April 2009.
Treasuries fell earlier as signs the economic recovery is gathering steam in Europe curbed demand for the safest fixed- income assets.
British GDP
U.K. GDP rose 1.1 percent in the three months through June after increasing 0.3 percent in the previous quarter, the Office for National Statistics said. Economists forecast a 0.6 percent gain, according to the median of 32 predictions in a Bloomberg news survey.
The Ifo institute said its German business climate index jumped to 106.2, the highest since July 2007, from 101.8 in June, the biggest monthly increase since records for a reunified Germany began in 1990.
While U.S. economic reports over the past month were weaker than some analysts projected, 10-year notes were still headed for a weekly loss amid optimism corporate earnings and a law extending payments to the unemployed would maintain growth.
“We’re not having a double-dip recession,” said Rob da Silva, who helps oversee $220 billion at Principal Global Investors in Sydney, part of Principal Financial Group Inc. “Our outlook for Treasuries is that yields will go up. Risk sentiment seems to be relatively positive.”
The 10-year yield, a benchmark for corporate borrowing and mortgages, may rise to 3.75 percent in 12 months, da Silva said. The yield will climb to 3.31 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings.
U.S. Earnings
Microsoft Corp. yesterday posted its biggest sales gain in 2 1/2 years. AT&T Inc., United Parcel Service Inc. and EBay Inc. also beat earnings estimates.
President Barack Obama signed an extension for jobless benefits into law yesterday, granting $34 billion of extra payments to the unemployed. Federal Reserve Chairman Ben S. Bernanke told lawmakers the same day that unemployment is “the most important” problem. The U.S. faces an “unusually uncertain” economy, the Fed chief said July 21.
Labor Department data yesterday showed initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg News.
Softer Data
“Data in the U.S. has softened slightly and Bernanke is reiterating that the Fed’s mandate is growth and employment,” said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London. “He’s saying there’s still ammunition they could use.”
Futures on the CME Group Inc. exchange show a 33 percent chance policy makers will boost the target lending rate for overnight bank loans at least a quarter-percentage point by April, compared with a 55 percent chance a month ago.
After crafting a rescue package worth almost $1 trillion to ward off speculators betting on a breakup of the euro region, regulators started tests on European banks to ensure they can withstand a recession and potential losses on government bonds. The results are due today.
Some Spanish savings lenders that participated in mergers and received money from Spain’s bank-rescue fund may not pass the stress tests, El Pais reported, citing unidentified people in financial markets. The banks may need additional capital if the economy worsens significantly, the Spanish newspaper said.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
From BloomBerg published on Jul 23, 2010