Treasury yields stalled after last week's increase as Italy prepared to sell as much as €20 billion (Dh96 billion) of debt in the next two days amid concern Europe's fiscal crisis will harm global growth.
US debt securities were headed for an 8.9 per cent return in 2011, which would be the biggest annual gain since 2008, according to a Bank of America Merrill Lynch index. Bonds fluctuated Monday as Christine Lagarde, the International Monetary Fund's managing director, said the world economy was in danger because of Europe's turmoil.
"It's quite a big amount Italy is targeting, and in these thinly traded markets that could be a bit of a concern," said Elwin de Groot, an economist at Rabobank Nederland in Utrecht, the Netherlands. "The fundamental concerns are still very much in place, and that's keeping a lid on yields."
Yields on ten-year US notes rose less than one basis point, or 0.01 percentage point, to 2.03 per cent at 8.04am yesterday morning, New York time, according to Bloomberg Bond Trader prices. The two per cent securities maturing in November 2021 fell 1/32, or 31 cents per $1,000 (Dh3,673) face amount, to 99 24/32.
The benchmark yields advanced 18 basis points last week in the biggest five-day increase since July 1. The yields have dropped 127 basis points in 2011, which would be the biggest slide in three years.
The US government received record demand for its bonds in 2011, pushing longer-maturity Treasuries to their best performance since 1995 in a sign that President Barack Obama may have little difficulty financing a fourth consecutive year of $1 trillion budget deficits.
The Treasury Department attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold, the most since the government began releasing the data in 1992 during the George H.W. Bush administration. The US drew an all-time high bid-to-cover ratio of 9.07 for $30 billion of four-week bills it auctioned on December 20 even though they pay zero per cent interest.
While Standard & Poor's stripped the US of its AAA credit rating on August 5, Treasuries due in ten years or more returned 25.6 per cent this year. Treasury ten-year notes dropped last week, pushing the yields up the most in almost six months amid data showing the US economy is strengthening.
Investors in a weekly survey by Ried Thunberg ICAP, a unit of ICAP Plc, the world's largest interdealer broker, remained bearish on Treasuries, the company said. Ried's index on the outlook on the market through March was 47 for the seven days ended December 23 versus 49 the week before. A figure below 50 shows investors expect rates to increase.
A gauge of US consumer confidence rose this month to 58.6, the highest since July, according to the median forecast of economists in a Bloomberg News survey. The report from the Conference Board, a New York-based research group, was due out later yesterday.
Home prices in 20 US cities probably fell at a slower pace, another report is forecast to show. The S&P/Case-Shiller index of property values dropped 3.2 per cent in October from the same month in 2010 in the smallest year-over-year decrease since January, according to the median forecast of economists in a separate Bloomberg News survey.
Italy is scheduled to sell €9 billion of 179-day bills and as much as €2.5 billion of zero-coupon 2013 bonds today. The nation will auction debt due in 2014, 2018, 2021 and 2022 on the following day.
Standard & Poor's said this month it may lower the credit grades of 15 euro nations, including Italy, France and Germany. The yield on Italian ten-year bonds climbed eight basis points to 7.06 per cent.
While Europe has made progress in confronting debt turmoil, the region needs to speed up implementation of crisis measures, Lagarde said in an interview, Le Journal du Dimanche reported. The US is already being affected, and growth forecasts for China, Brazil and Russia are also being lowered, she said.
"It's certain that Europe will enter a recession," said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co, which oversees the equivalent of $42 billion. "That's a positive factor for Treasuries."