Treasuries fall

The biggest earthquake on record to hit Japan may prompt insurance firms to sell assets to pay for damages, and investors were watching Friday to see if they dispose of US government debt to raise cash. The massive quake left analysts seeking market guidance from Treasury bond and yen charts after the 1995 Kobe earthquake hit Japan. Yields on 10-year Treasuries rose by about 20 basis points in a bond market sell-off in the days following the Kobe disaster.
"Historically when you see an event such as this, people start pricing assets as if they are going to be sold," said Brian Yelvington, fixed income analyst at Knight Capital Group in Greenwich, Connecticut. Investors are worried insurers and reinsurers exposed to the country may need to sell assets to pay claims. However, traders said there was no evidence so far that Japanese investors were selling bonds, though that didn't stop others.
Benchmark 10-year notes were down 9/32 in price to yield 3.40 percent on Friday, up from 3.36 percent late Thursday. The yield is down from a recent high of 3.60 percent on March 4. Analysts attributed much of the price fall to profit-taking after political protests and uprisings in the Middle East and North Africa sparked a bond market rally earlier this week, rather than events in Japan.
"I think we reached a distress level into yesterday afternoon, and people are using that as an opportunity to lighten up," said Tom Tucci, head of government bond trading at RBC Capital Markets in New York. The 30-year long bond fell 22/32 in price to yield 4.54 percent, up from 4.50 percent on Thursday. Some analysts downplayed the potential impact of the Japanese earthquake on the Treasuries market, based on the market reaction following the 1995 Kobe quake.
"The great earthquake that hit in January 1995 did not seem to trigger a liquidation of Treasury holdings," said David Greenlaw, economist at Morgan Stanley in New York. "The US Treasury TICS data show that Japan holdings of Treasuries - which were on a steady upswing at the time - kept rising every month until September 1995, then there was a small decline for a few months followed by renewed increases starting in early 1996." Others said it was too early to tell what the eventual influence of the earthquake might be on Treasuries.