US Treasuries prices gained on Wednesday, boosted by a safety bid as Italian borrowing costs topped 7 percent, raising fears the eurozone's third-largest economy would need emergency aid. Political turmoil in Italy has made it the epicentre of the worsening eurozone debt crisis this week as markets worried about its ability to adopt reforms to cut its debt burden and make its economy more competitive.
Even with Prime Minister Silvio Berlusconi promising to step down, bond yields continued to rise, prompting Paris-based clearing house LCH.Clearnet to raise margin requirements for Italian government debt used as collateral. "Everyone is waiting on the next shoe to drop out of Europe," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. "It seems there are no leaders and there are no answers, and that is scaring people."
Treasuries prices rose in volatile trading, temporarily paring gains after the Treasury had to pay higher yields for a $24 billion sale of new 10-year notes. The notes sold at a high yield of 2.03 percent, almost 3 basis points higher than where the debt was trading before the auction. The bid-to-cover ratio, which measures demand relative to the amount of debt on offer, was 2.64, the lowest since December 2009.
Some investors had anticipated the Treasury would need to pay higher yields after renewed fears over Europe scuttled much of the traditional auction set-up, where dealers typically sell bonds to prepare for the sale, driving down prices. The 10-year note's yields have rallied from 2.09 percent on Tuesday and over 2.40 percent two weeks ago as investors lost confidence that European leaders were near a solution to the crisis. Ten-year notes had rallied as low as 1.93 percent on Wednesday. They last traded at 1.97 percent, up a point in price on the day. The Treasury will sell $16 billion in 30-year bonds on Thursday, the final of this week's $72 billion in new issues.
Comments
Comments are closed.