By Deborah Lynn Blumberg
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Treasury prices pushed up Monday as a financial aid package for cash-strapped Ireland failed to soothe concerns about the finances of other struggling euro zone nations.
Nervous investors swept up low-risk U.S. government debt after Ireland applied for tens of billions of euros in aid from the European Union and the International Monetary fund. Nerves were frayed after Ireland's junior coalition party said that it was asking for a general election to be held in January, and following word from Moody's that Ireland's sovereign credit rating could be in for a multi-notch downgrade. Investors were also concerned that financially-strapped Spain and Portugal will also eventually need to be bolstered.
"The issues with Ireland beg the question of, what happens next with Portugal and Spain?" said Carl Lantz, a fixed income strategist at Credit Suisse in New York. "The more countries that end up needing support, the fewer countries there are to provide that support."
The fear is that sovereign debt issues could cause the prospect for growth across euro zone nations to deteriorate sharply, derailing the global recovery.
"The outlook for growth is not exactly positive" in countries accepting bailout money given the concessions and cuts the nations will be required to make, said Tom Tucci, head of government bond trading at RBC Capital Markets Corp. in New York.
Gains Monday were the most pronounced in 10- and 30-year Treasury securities after a Fed purchase Monday of eight to 10-year notes. The purchase was part the Fed's second large scale bond buying program, known as quantitative easing, or QE2.
The Fed bought $8.257 billion Treasurys in its first of two Treasury buying operations in the holiday shortened week. The market will be shuttered on Thursday for the Thanksgiving holiday and will close early on Friday; $33.513 billion in bids were submitted. In its next operation, the Fed will buy Treasury inflation protected securities on Tuesday morning.
In recent trade, the 10-year note was up 14/32 to yield 2.824% and the 30-year was 31/32 higher to yield 4.190%. Shorter-maturity Treasurys were lagging ahead of a healthy dose of supply this week.
The government is set to sell $99 billion in short-term Treasurys this week. Auctions kick off Monday afternoon with a sale of $35 billion in two-year Treasurys. The sale size is unchanged from the previous two-year Treasury auction. The two-year was flat in recent trade at 0.509%; the when-issued was at 0.528%.
Treasury traders said demand should be decent, though the auction could tail, meaning the yield on the new notes will be higher than that on the when-issued notes just before the sale, as market participants jockey to get the notes at higher yields.
"Two-year note auctions have gone swimmingly no matter what the yields and foreign interest have been," said William O'Donnell, head of U.S. government bond strategy at RBS Securities Inc. in Stamford, Conn. He expects another good auction Monday with auction statistics very close to the six auction averages, a bid to cover near 3.34, indirect bid of 36.4% and direct bid around 14.8%.
The indirect bid represents demand from domestic and foreign institutions, including foreign central banks, while the so-called direct bid is made up of large money managers and hedge funds and foreign investors, which have their own accounts with the Treasury.
If the notes are sold near 0.53%, that will be the highest yield at auction since July, which should help to lift demand.
The Treasury market Monday climbed back from a rough week last week when prices dropped and yields pushed up amid a global backlash against QE2. Strategists said that investors were feeling a bit better about the Fed bond buying program after recent growth and inflation data remained weak, supporting the buying effort.
The Fed is buying $600 billion of Treasurys through June in an effort to ward off deflation and stimulate the economy.
Tucci believes the Fed could ramp up its buying the week before Christmas rather then buy during the holiday period, leaving him positive on 10- and 30-year Treasurys into the end of the year.
-By Deborah Lynn Blumberg, Dow Jones Newswires; 212-416-2206; deborah.blumberg@dowjones.com
This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured article: Beyond Hiroshima - The Non-Reporting of Falluja's Cancer Catastrophe.
