US Treasuries prices rose on Friday, boosted by a safety bid from eurozone debt issues, though the sale of $99 billion in new notes next week is seen likely to pause the market's rally. Most prices ended slightly higher as disagreements on how to tackle Greece's debt and concern that Spanish regional elections on Sunday might reveal hitherto undisclosed debt in local governments fed the bid.
Fitch Ratings also cut Greece's debt ratings deeper into junk and said it may cut them further. Impending supply of new two-year, five-year and seven-year notes could hurt yields next week as liquidity is expected to decline ahead of the US Memorial Day holiday.
"As you get later in the week you're going to have less liquidity, so moves may be exacerbated," said Ira Jersey, interest rate strategist at Credit Suisse in New York. The 10-year notes were last up 4/32 in price to yield 3.16 percent, down from 3.17 percent on Thursday. Five-year notes rose 4/32 in price to yield 1.80 percent, down from 1.83 percent.
The cost of insuring Treasuries against default in the credit default swap market also jumped on Friday, suggesting some investors are starting to seek protection against political debate over raising the debt ceiling. A default by the US government continues to be seen as a very remote possibility.
The cost of five-year CDS protection has risen by around 10 basis points this week to 51 basis points, or $51,000 per year to insure $10 million in debt, its highest level since January. One-year CDS costs have more than doubled to 40 basis points, from 15 basis points. Payments on around $4 billion in CDS would likely be triggered if the US government misses a debt payment. In this case, the buyer of protection would be paid the full sum insured, and in return would give the seller the equivalent par amount in Treasuries. The cheapest Treasuries that are likely to be able to be delivered in this scenario are bonds due in February 2039, which are currently trading at around 87 cents on the dollar.