New York: Treasuries rose, with 30-year bonds gaining for the first week this year, as concern that social unrest in Egypt was intensifying overshadowed signs the American economy is improving.
US government debt also gained as Treasury sales of $99 billion (Dh363.57 billion) in notes drew more demand than at the previous offerings. The Federal Reserve bought $30.7 billion in Treasuries in a programme to spur economic growth, and may purchase $29.5 billion this week. Thirty-year bonds pared a fifth monthly drop, the longest losing stretch since July 1999.
"The story of the week is Egypt, and the unrest in a very important region," said Christopher Sullivan, who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union. "The economic data confirmed that the US economy is on the verge of sustainability, and the Fed is continuing with its program, which has put pressure on the long end, but the news out of Egypt overwhelmed the positive data."
The ten-year note yield dropped eight basis points, or 0.08 percentage point, to 3.33 per cent on Friday in New York, from 3.41 per cent on January 21, according to BGCantor Market Data. The price of the 2.625 per cent security due in November 2020 rose 21/32, or $6.56 per $1,000 face amount. The benchmark note was also poised for a fifth monthly decline, its longest run of such losses since 2006.
Yields on 30-year bonds decreased four basis points to 4.53 per cent after touching 4.64 per cent on Friday, the highest level since April 29. Treasuries have lost 0.1 per cent this month, according to the Bank of America Merrill Lynch Treasury Master index. They returned 5.9 per cent in 2010.
Challenge
Egyptian President Hosni Mubarak said in a speech he has requested the government step down. Protesters clashed with police yesterday throughout the country and into the night, defying a curfew, in the biggest challenge to his 30-year rule. The demonstrations began on Tuesday, inspired by an uprising that ousted Tunisian President Zine Al Abidine Bin Ali.
"The worry is that what is happening in Egypt and Tunisia could spread to neighbouring countries, and whenever anything happens in such a geopolitically important region like the Middle East, people pause," said Jason Rogan, director of US government trading at Guggenheim Partners LLC, a New York- based brokerage for institutional investors.
Fitch Ratings revised Egypt's outlook to negative, and the country's dollar bond yields rose to record highs. The Standard and Poor's 500 Index dropped on Friday the most since August, tumbling 1.8 per cent. "There is a flight-to-quality bid that has emerged due to the lack of clarity around the Egyptian story," said Christian Cooper, head of US dollar derivatives trading in New York at Jefferies and Co, one of the 18 primary dealers that trade with the Fed. "The bid came as a surprise to the market, but if there is some clarity we could see the safety bid reverse course pretty quickly."
Treasuries fell on Wednesday as the Fed maintained its $600 billion bond-purchase programme while saying the pace of economic expansion is insufficient to lower unemployment, sparking concern inflation will be rekindled.
