World Crisis Online

By Cordell Eddings – Treasuries fell, with 10-year notes touching the highest yield since April, as the U.S. sold $72 billion of debt amid data showing the economy is gaining steam.

Yields on 30-year bonds were the highest in 10 months as the amount of bids at the Feb. 10 bond sale was less than the average for the past 10 auctions and the Feb. 8 note sale drew the lowest demand in the category of bidders that includes foreign central banks since May 2007. The Labor Department reported initial claims for unemployment insurance fell to the lowest since July 2008. Government reports next week are forecast to show January retail sales and housing starts grew.

“The market is looking away from Treasuries and focusing more on the growing recovery and looking where the money is going, and that is too risky assets,” said Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee. “The market will look to economic reports for more confirmation of the recovery.”

Ten-year note yields fell one basis point to 3.63 percent in New York, according to BGCantor Market Data, compared with 3.64 percent Feb. 4. The yield touched 3.77 percent on Feb. 9, the most since April 29.

Thirty-year bond yields were little changed at 4.69 percent. They reached 4.79 percent on Feb. 9, the highest since April 7.

Economic Readings

“The bias seems to be towards higher rates now with economic numbers generally coming in better than expected,” said Larry Milstein, managing director in New York of government debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “People are getting defensive and positioning themselves for higher rates.”

Applications for jobless benefits decreased by 36,000, more than forecast, to 383,000 in the week ended Feb. 4, Labor Department figures showed. Economists forecast claims would fall to 410,000, according to the median estimate in a Bloomberg News survey.

The University of Michigan consumer sentiment index rose to 75.1 this month from 74.2 in January, in line with a Bloomberg survey.

Retail sales may have increased 0.5 percent in January, the seventh straight monthly gain, according to the median forecast of 62 economists surveyed by Bloomberg News. Housing starts in January rose 1.7 percent after a decrease of 4.3 percent in December, according to the average estimate of 59 economists in a separate survey.

Bernanke Testifies

Fed Chairman Ben S. Bernanke told the House Budget Committee in Washington Feb. 9 that the unemployment rate is likely to remain high “for some time,” indicating the central bank will maintain its policy of low interest rates and debt buying.

The Fed released an updated schedule for its $600 billion debt-buying plan, known as quantitative easing, to bolster the economy. The central bank said it plans to buy about $97 billion of Treasuries in 18 operations from Feb. 11 through March 9.

“We are seeing a little softening as the Fed is buying significantly less this time than they did last time,” said Sean Murphy, Treasury trader in New York at Societe Generale, a primary dealer. “Last time they purchased $112 billion while this time they are only purchasing $97 billion.”

Thus far, the central bank has purchased $328.1 billion of Treasuries. The Fed has held its short-term interest rate target at almost zero since December 2008.

Mubarak Departs

Treasuries pared their weekly losses after Egyptian President Hosni Mubarak resigned yesterday, reversing plans outlined in a speech Feb. 10 that drew calls for continued and larger protests in Cairo. Mubarak stepped down and handed power to the military, bowing to the demands of protesters who have occupied central Cairo for the past three weeks demanding an end to his 30-year rule.

“The Egyptian story is adding a bit to the market because there is still a lot of uncertainty about what the situation will look like going forward,” said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies & Co., one of the 20 primary dealers that trade with the Fed.

Treasury auctioned $72 billion in notes and bonds last week. The bid-to-cover ratio at the 30-year bond sale on Feb. 10, which gauges demand by comparing total bids with the amount of securities offered, was 2.51, compared with the average at the last 10 auctions was 2.68.

Three-Year Notes

The U.S. sold $32 billion of three-year debt on Feb. 8 at a yield of 1.349 percent, the highest since May. It sold $24 billion of 10-year securities on Feb. 9 at a yield of 3.665 percent, the highest since April and a record 71.3 percent awarded to indirect bidders.

The U.S. Treasury Department will sell $9 billion in 30- year inflation-indexed bonds Feb. 17.

U.S. government securities maturing in more than a year have handed investors a 1.5 percent loss this month, among the worst performers of 26 sovereign-bond markets tracked by the European Federation of Financial Analysts Societies and Bloomberg.

Treasury Secretary Timothy F. Geithner offered a report that said the U.S. should “ultimately wind down” government- sponsored secondary mortgage market companies Fannie Mae and Freddie Mac. Geithner presented Congress with a set of options for weaning the $11 trillion mortgage market from its dependence on the government, while calling for changes to be phased in “responsibly and carefully” to avoid economic disruptions.