TREASURIES-Yields hit lowest in 1-1/2 weeks on Cyprus bank scare

Mon Mar 18, 2013 2:47pm EDT

Related Topics

* Benchmark yields dip to as low as 1.90 percent
    * Cyprus bailout plan raises fears over euro zone contagion
    * Investors focused on Fed meeting announcement on Wednesday

    By Luciana Lopez
    NEW YORK, March 18 (Reuters) - Prices for U.S. Treasuries
jumped in heavy trading on Monday, taking benchmark yields to
their lowest in almost two weeks as a euro zone plan to seize
money from Cypriot bank deposits rattled investors around the
world.
    Euro zone finance ministers want to tap Cyprus' savers for
the country to receive a 10 billion euro ($13 billion) bailout,
which triggered a run on bank deposits after its announcement on
Saturday morning. 
    Cypriot ministers scrambled to revise the plan on Monday to
try to increase the chance of passage by lawmakers, postponing a
parliamentary vote until Tuesday and prolonging the uncertainty
for investors. 
    "Although euro zone leaders will argue that Cyprus is
different and a one-off case, with the latest Cypriot bailout
package European leaders have opened a can of worms in that
future bailouts may now affect bank depositors," said David
Keeble, global head of interest rate strategy at Credit Agricole
in New York.
    Benchmark 10-year Treasuries last traded up
10/32 in price to yield 1.956 percent, after earlier falling to
as low as 1.90 percent. The notes ended on Friday yielding 1.99
percent. Monday's yield was the lowest since March 6.
    Thirty-year bonds gained 15/32 in price to yield
3.187 percent, with yields falling as low as 3.12 percent
overnight. Bond yields ended Friday at 3.21 percent.
    Demand for safe haven bonds, including Treasuries, was seen
as exacerbated by hedge funds and other leveraged investors
looking to cover exposures to risky European assets including
sovereign debt such as that of Italy and Spain, which weakened
on the Cyprus news.
    Investors were also focused over whether the move will make
it more likely that policymakers will consider forcing losses on
other investors including bank bondholders, which has formerly
been considered taboo.
    "The idea that there has to be private pain in order for
there to be any public bailout seems to be a bit of a regression
to where we were three years ago," said Jim Vogel, interest rate
strategist at FTN Financial in Memphis, Tennessee.
    Some analysts, however, saw most of the Treasuries rally as
being exhausted by mid-morning, unless there are signs of
contagion from Cyprus into the euro zone. 
    Instead, said MacNeil Curry, a technical strategist with
Bank of America Merrill Lynch in New York, investors should stay
bearish.
    "Absent a break of 1.871 percent/1.826 percent the uptrend
remains on firm footing for 2.149 percent" or even further,
Curry said.
    Investors are also looking to a Federal Reserve meeting on
Tuesday and Wednesday, watchful for any signs Fed Chairman Ben
Bernanke may consider tapering or ending bond purchases after
recent data have pointed to an improving U.S. economy.
    "The question becomes how firmly Bernanke restates all of
his earlier positions, given the markets view that the economic
data continue to get better," said Vogel.
    Most Wall Street economists expect that the Fed will
continue its bond purchases through 2013, before tapering or
ending the buybacks in 2014.
    The Fed bought $1.46 billion in bonds due 2036 to 2043 on
Monday as part of its ongoing Treasuries purchase program.
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