Treasuries post largest weekly gain in 2 years on Crimea turmoil

Treasuries rose in the biggest weekly gain in almost two years as unrest in Ukraine drove investors to the safety of U.S. government debt. More

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Treasuries post largest weekly gain in 2 years on Crimea turmoil

Posted 3/14/14

NEW YORK - Treasuries rose in the biggest weekly gain in almost two years as unrest in Ukraine drove investors to the safety of U.S. government debt.

The yield on the benchmark 10-year note touched the lowest level in 10 days after Estonian Defense Minister Urmas Reinsalu said Russian President Vladimir Putin is preparing to invade Ukraine as Crimea readies for a March 16 referendum on splitting from Ukraine after Russia seized the peninsula. Signals of growth slumping in China increased the allure of havens. Producer prices in the United States unexpectedly dropped in February.

“People are a little bit nervous about Ukraine; China is on people’s minds,” said Brian Edmonds, the head of interest-rates trading in New York at Cantor Fitzgerald LP, one of 22 primary dealers that trade with the Federal Reserve. “You combine that and it means a monstrous bid for bonds starting yesterday. People need long-end duration now. That’s what people are grabbing.”

Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 2.62 percent at 8:57 a.m. in New York, Bloomberg Bond Trader data showed. The yield slid 17 basis points this week, the most since the period ended June 1, 2012. The price of the 2.75 percent note due February 2024 rose 6/32, or $1.88 per $1,000 face value, to 101 3/32.

The yield fell through its 200-day moving average of 2.67 percent yesterday, a level some traders use as a gauge of where orders to buy and sell are set.

The Bloomberg U.S. Treasury Bond Index is little changed for March. It’s up 2.1 percent in 2014 through yesterday.

Sanctions loom

Events in Ukraine “clearly show that the Russian Federation only accepts force,” Reinsalu said in an emailed statement Friday. To deter Putin, “a clear message needs to be sent that an attack will cost the aggressor dearly.”

Russia warned earlier that Ukraine’s government has lost control of the country.

Treasuries rallied and trading volume surged Thursday as Secretary of State John Kerry told a Senate panel in Washington, D.C., that the U.S. and Europe will take “very serious” steps the day after the referendum in Crimea “if there is no sign” of a resolution to the crisis. President Barack Obama has threatened sanctions against the nation.

‘Very bad’

“Treasuries, bunds and gilts lead in this kind of move,” Steven Major, head of global fixed-income research at HSBC Holdings PLC, said in an interview on Bloomberg Television’s “Countdown” with Mark Barton and Anna Edwards. “It’s very difficult to imagine a scenario whereby everyone just kind of kisses and makes up, so on Monday morning it’s not going to be a case of everything’s fine. It’s either going to be very very bad, or very bad.”

German bund yields fell two basis points to 1.52 percent, and U.K. gilt yields dropped four basis points to 2.65 percent.

Volume at ICAP PLC, the largest inter-dealer broker of U.S. government debt, jumped 53 percent to $582 billion Thursday, the most since May 31. The average this year is $338 billion.

In China, industrial output and retail-sales growth cooled more than economists estimated in January and February, government data showed Thursday.

The flight to quality is still supporting Treasuries even though the U.S. economy is “not so weak,” said Hideaki Kuriki, a bond trader in Tokyo at Sumitomo Mitsui Trust Asset Management, which has the equivalent of $40.9 billion in assets.

Ten-year yields will be 2.6 percent to 2.9 percent for the next few months, he said.

Producer prices

The 0.1 percent decrease in the producer-price index followed a 0.2 percent rise the prior month, a Labor Department report showed Friday in Washington. The median estimate in a Bloomberg survey called for a 0.2 percent increase. Over the past 12 months, wholesale prices rose 0.9 percent.

Retail sales climbed more than analysts expected last month, according to a government report Thursday.

Bidding at an auction of benchmark 10-year notes this week rose to the highest in a year. Investors submitted bids for 2.92 times the amount of debt available, the highest level in a year.

Central banks outside the U.S. aren’t joining in buying Treasuries. U.S. government securities held in custody by the Fed for foreign central banks fell the most since August 2007 in the week ended March 12, central bank data show.

Custodial holdings declined 1.6 percent during the period to $2.92 trillion.

Yoshiyuki Suzuki, head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co, said he bought “a little” in the Treasury market this month because of China and Ukraine. The company has the equivalent of $59 billion in assets.

Ten-year yields may fall to 2.5 percent in the next month or two, he said.

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