ECONOMY

Treasuries fall for fourth day before Greek debt talks

Treasuries dropped for a fourth trading session before euro-area finance ministers meet next week to discuss a debt-reduction plan for Greece.

The yield on 10-year notes reached 1.7 percent, the highest since November 7, as gains in Asian stocks sapped demand for safer assets. Trading of U.S. government bonds was closed in Japan on Friday for a holiday after the U.S. market was shut on Thursday Thanksgiving day, according to the Securities Industry and Financial Markets Association website.

“Investors have been pretty comfortable dismissing the lack of progress” in the Greek situation, said Michael Turner, a fixed-income strategist in Sydney at Royal Bank of Canada. While Treasury yields may rise to as high as 1.75 percent, he expects “a little bit more demand to surface around those levels,” Turner said.

The 10-year yield was 1.69 percent as of 7:24 a.m. in London, up one basis point from the November 21 close, having earlier risen as much as two basis points. The 1.625 percent note maturing in November 2022 fell 3/32, or 94 cents per $1,000 face amount, to 99 13/32, according to Bloomberg Bond Trader prices.

The MSCI Asia Pacific excluding Japan Index of stocks advanced 0.7 percent, extending its gain to a fifth day, the longest stretch since September 12.

Finance ministers from the 17 euro-area nations will hold an emergency meeting on November 26 to discuss unlocking bailout funds for Greece. They failed to reach an agreement on the matter after 11-hour talks broke up on November 21.

Greek Loans

The main obstacle to releasing international loans for the debt-saddled nation is a plan to cut the interest rates charged by euro-area creditors, a Greek official told reporters on Thursday in Brussels. Policy makers will continue work on an updated aid package for the country into this weekend in preparation for next week’s meeting, said the official on condition of anonymity.

U.S. government securities returned investors 2.3 percent this year, Bank of America Merrill Lynch indexes show. The MSCI World Index (MXWO) of shares has risen 12 percent during the period, including reinvested dividends.

The U.S. government is scheduled to auction a total of $99 billion in bonds next week, starting with $35 billion of two- year notes on November 27. The Treasury will offer the same amount of five-year securities on November 28 and $29 billion of seven-year debt the following day.

The 10-year yield has rebounded since it reached a two- month low of 1.55 percent on November 16 when President Barack Obama met congressional leaders about the so-called fiscal cliff. House Speaker John Boehner and White House Press Secretary Jay Carney both described the discussions as “constructive.”

Fiscal Cliff

The fiscal cliff refers to the $607 billion combination of automatic spending cuts and tax increases scheduled to take effect in January. Lawmakers are trying to avert the cliff to prevent a short-term shock to the economy and reach an agreement on long-term deficit reduction.

“When the fiscal cliff negotiation starts again, it should be more constructive,” said Alvin Liew, a senior economist at United Overseas Bank Ltd. (UOB) in Singapore. “That should be negative” for Treasuries, he said.

Figures due November 27 are likely to show orders for durable goods declined while home prices rebounded, indicating the recovery in the world’s largest economy has yet to gather pace.

The Commerce Department may say that bookings for goods meant to last at least three years fell 1 percent in October from the prior month, according to the median projection of economist surveyed by Bloomberg. The S&P/Case-Shiller index of property values in 20 cities probably increased 2.9 percent in September from a year earlier, the most since July 2010, economists forecast.

‘Critical Challenge’

The housing revival still faces “significant obstacles,” and strengthening the housing recovery remains a “critical challenge” for policy makers, Federal Reserve Chairman Ben S. Bernanke said on November 15. He unveiled a plan in September to buy $40 billion of mortgage debt a month in a third round of so- called quantitative easing.

The Fed currently sells shorter-term notes and buys longer- maturity bonds as part of its Operation Twist program due to expire at the end of this year. The central bank will buy as much as $2.25 billion of Treasuries on November 26 maturing in February 2036 to November 2042.

“You’ve still got fairly hefty buying by the Fed going through every month taking a whole lot of stock out of the market,” said Turner at Royal Bank of Canada. “So, you can’t be too bearish on the Treasury yields.”

[Bloomberg]