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Feb. 8 (Bloomberg) — Treasuries pared losses after stocks declined as concern over deficits in Greece, Portugal and Spain renewed demand for the refuge appeal of U.S. government debt.
Bonds had slumped earlier as the Treasury prepared to sell a record-tying $81 billion of notes and bonds in three auctions starting tomorrow.
“All eyes are on Greece and Portugal to see the outcome,”
said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “There’s a flight to quality going on and a lot of it has to do with what’s going on in Europe.”
The yield on the 10-year note rose less than 1 basis point to 3.57 percent at 7:45 a.m. in New York, according to BGCantor Market Data. Two-year note yields rose less than 1 basis point to 0.77 percent.
The Treasury will offer $2.43 trillion of government securities this year, the most ever and a 16 percent increase from 2009, according to the average forecasts of 10 bond-trading companies. U.S. officials said last week that they’ve increased the auction sizes enough to fund the budget deficit.
Futures on the Standard & Poor’s 500 Index fell 0.1 percent, indicating the U.S. benchmark is set to decline. The futures were up as much as 2.1 percent earlier.

Debt Sales

“It’s a big week in terms of supply,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate Investment Bank in London. “It’s not a surprise to see Treasuries coming off a bit.”
The Treasury will sell $40 billion in three-year notes tomorrow, $25 billion of 10-year securities on Feb. 10 and $16 billion of 30-year bonds on Feb. 11.
Treasuries rose last week, pushing 10-year yields to the lowest level since December, on speculation worsening government finances in Greece, Portugal and Spain will slow the global economy and make it harder for companies to meet debt payments.
Greece is trying to persuade financial markets it can restrain the European Union’s largest budget shortfall without outside assistance, while borrowing costs are also climbing for Portugal and Spain. Credit-default swaps on the debt of all three countries rose to records last week, increasing demand for the U.S. government securities. Credit-default swaps are contracts designed to protect against or speculate on default.
Greece will need external financing as it tackles the largest budget shortfall within the European Union, Mohamed El- Erian, co-chief investment officer at Pacific Investment Management Co., said today at a briefing in Sydney. Fixing sovereign balance sheets will take years, he said.

Extra Yield

The U.S. is in no danger of losing its Aaa debt rating, Treasury Secretary Timothy F. Geithner said in an ABC News interview broadcast yesterday.
Former Federal Reserve Chairman Alan Greenspan said it is “very difficult” to see U.S. unemployment falling soon, speaking yesterday on NBC’s “Meet the Press” program.
The Treasury’s decision to stop increasing its debt sales may bolster the economy just as the Fed withdraws emergency spending measures.
Restricting growth in the auction sizes will cause the difference in yields between 2- and 10-year notes to shrink to
2.15 percentage points by year-end from the record 2.90 percentage points last month, according to Bloomberg surveys of banks and securities firms.

Yield Curve

The narrower yield curve may cap mortgage rates, which are pegged to 10-year Treasury note yields, as the central bank’s
$1.25 trillion in mortgage-bond purchases end on March 31. It also would encourage banks that have relied on profiting from differences between short- and long-term rates to boost lending as the Fed tries to cut its stimulus and lending programs.
Ried Thunberg ICAP Inc.’s index measuring the outlook for Treasuries through the end of March declined to 42 for the seven days ended Feb. 5 from 43 the week before. A figure less than 50 shows investors expect prices to fall.
The company, in Jersey City, New Jersey, interviewed 22 fund managers controlling $1.2 trillion.

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