April 19 (Bloomberg) -- Treasury 10-year notes fell for the first time in three days as stocks swung between gains and losses after Citigroup Inc. reported better-than-forecast results, reducing the refuge appeal of U.S. government debt.
Ten-year note yields slid seven basis points on April 16, the most on a closing basis in over a week, after the Securities and Exchange Commission sued Goldman Sachs Group Inc. for fraud tied to collateralized debt obligations. The index of U.S. leading indicators rose in March by the most in 10 months.
“We are in a wait-and-see type atmosphere where rates are being driven by stocks, earnings and how the Goldman story plays out,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities, an interdealer broker. “The market seems to be taking a bit of a breather.”
The yield on the benchmark 10-year note rose two basis points, or 0.02 percentage point, to 3.79 percent at 10:43 a.m. in New York, according to BGCantor Market Data. The yield earlier touched 3.74 percent, the lowest since March 24. The 3.625 percent security due February 2020 fell 3/32, or 94 cents per $1,000 face amount, to 98 3/4.
‘Overbought Territory’
“Treasuries have rallied into thick bands of resistance while momentum indicators have edged into overbought territory,” William O’Donnell, U.S. government bond strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, one of 18 primary dealers that trade with the Federal Reserve, wrote in a note to clients. Resistance refers to areas on charts where sell orders are clustered. Such a band is between 3.745 percent and 3.56 percent on the 10-year note, O’Donnell wrote.
The Standard & Poor’s 500 Index gained 0.2 percent after sliding 1.6 percent on April 16, the most since Feb 4. Citigroup jumped 4.8 percent after profit more than doubled as costs for bad loans decreased. Goldman Sachs lost 1.7 percent as Germany and the U.K. signaled probes of the most profitable firm in Wall Street history.
U.K. Prime Minister Gordon Brown yesterday called for the Financial Services Authority to start an investigation into Goldman Sachs. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said.
The European Union is also probing Goldman Sachs’s role in arranging swaps for Greece that may have masked the country’s budget deficit.
Recovery Concern
Concern the global recovery is facing headwinds has helped send 10-year yields down from the 4.01 percent they reached on April 5, the highest level since October 2008. Fed Chairman Ben S. Bernanke told Congress on April 14 that high unemployment and weak construction are among the “significant restraints” on the pace of growth and repeated the Fed’s view that borrowing costs are likely to stay low for an “extended period.”
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, fell to 2.32 percentage points today from this year’s high of 2.49 percentage points set in January.
Signs inflation is contained will encourage investors to buy longer-maturity bonds, flattening the so-called yield curve, according to Mizuho Asset Management. The difference in yield between two- and 10-year notes, which was at 2.81 percentage points today, is likely to narrow to 2.22 percentage points by year-end, a weighted Bloomberg survey of economists showed.
German Bunds
Wholesale prices excluding food and energy costs rose 0.1 percent in March, the same as the prior month, according to a Bloomberg survey before the Labor Department report on April 22. The cost of living in the U.S. rose 0.1 percent in March, while prices excluding food and energy were unchanged, the Labor Department said April 14.
The index of leading indicators rose 1.4 percent last month, more than the 1.1 percent median forecast in a Bloomberg survey.
Investors remained the least bearish this year on U.S. government debt, according to a survey of money managers by Ried Thunberg ICAP Inc.
The company’s index measuring the outlook for Treasuries through the end of June was 46, matching the highest this year. A figure less than 50 shows investors expect prices to decline. The company, based in Jersey City, New Jersey, interviewed 21 fund managers controlling $1.32 trillion of assets.
Yields on 10-year German bunds rose as much as 0.24 percentage point relative to similar-maturity Treasuries from April 5 through last week and BlackRock Inc., the world’s largest money manager, said it no longer pays to own the debt amid Europe’s fiscal crisis.
After returning three times more than Treasuries since Sept. 15, 2008, as investors favored the debt of nations with the lowest budget deficits, sentiment toward bunds is turning on speculation the aid package may be the first step in a unified fiscal policy. Europe’s “game of fiscal chicken” promises to make governments less determined to cut deficits, according to BNP Paribas SA, France’s biggest bank.
--Editors: James Holloway, Gregory Storey
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