Bonds fall as US debt loses its appeal
Bonds fall as US debt loses its appeal
By Richard Beales, Michael Mackenzie and Ben White in New York
Copyright The Financial Times Limited 2007
Published: June 13 2007 03:00 | Last updated: June 13 2007 03:00
Government bonds around the world plunged again yesterday, bringing 10-year US Treasury yields to their highest levels in more than five years - amid signs that the foreign appetite for US government debt could be ebbing.
The continuation of last week's sell-off could push mortgage rates higher, further weakening the battered US housing market. Countrywide, the biggest mortgage lender, said its foreclosure rate doubled in the year to May.
The upward trend in government bond yields is also set to make corporate borrowing more expensive, potentially undermining the easy credit conditions that have been supporting the global buy-out boom.
European bond yields also set new multi-year highs, with the 10-year Bund yield rising almost 6 basis points to 4.61 per cent. Stocks fell, with the S&P 500 index closing down 1.1 per cent and the FTSE Eurofirst 300 index retreating 0.5 per cent.
The yield on 10-year US Treasuries rose to a high of 5.27 per cent, its highest level since May 2002, before settling back to 5.26 per cent in later trading, up 12bp for the day.
It marked the first time the benchmark yield has been above the prevailing Fed funds rate of 5.25 per cent since the US central bank tightened overnight lending to that level in June 2006.
The session's peak yields followed a weak $8bn sale of new US 10-year bonds, in which foreign investors bought less than 11 per cent of those available.
Dominic Konstam, head of interest rate strategy at Credit Suisse, said: "Foreign investors are not buying this market and Treasuries are also having to compete with higher returns on risky assets."
Analysts say foreign buying - for example by the Chinese central bank - has been holding Treasury yields down in recent years. But China's announced investment in Blackstone, the private equity firm, and other signs of interest in other types of investment suggest foreigngovernments are starting to diversify their holdings.
Indicators of corporate credit risk - such as the European iTraxx crossover index of volatile credit derivative names - have risen slightly, but are yet to reflect signs of serious concern.
Kingman Penniman of KDP Investment Advisers, a US consultancy, said 5.25 per cent yields were psychologically significant and investors were still wondering if they would hold above that level. If so, he said, "at some point we will be repricing risk in a meaningful way, but that hasn't happened yet".
In an interview following Lehman Brothers' earnings report, Chris O'Meara, the investment bank's chief financial officer, said: "So far it's been an orderly back-up in rates. The thing nobody wants to see is a shock of some sort. Right now I don't think it's going to change anybody's mind about doing a deal."
By Richard Beales, Michael Mackenzie and Ben White in New York
Copyright The Financial Times Limited 2007
Published: June 13 2007 03:00 | Last updated: June 13 2007 03:00
Government bonds around the world plunged again yesterday, bringing 10-year US Treasury yields to their highest levels in more than five years - amid signs that the foreign appetite for US government debt could be ebbing.
The continuation of last week's sell-off could push mortgage rates higher, further weakening the battered US housing market. Countrywide, the biggest mortgage lender, said its foreclosure rate doubled in the year to May.
The upward trend in government bond yields is also set to make corporate borrowing more expensive, potentially undermining the easy credit conditions that have been supporting the global buy-out boom.
European bond yields also set new multi-year highs, with the 10-year Bund yield rising almost 6 basis points to 4.61 per cent. Stocks fell, with the S&P 500 index closing down 1.1 per cent and the FTSE Eurofirst 300 index retreating 0.5 per cent.
The yield on 10-year US Treasuries rose to a high of 5.27 per cent, its highest level since May 2002, before settling back to 5.26 per cent in later trading, up 12bp for the day.
It marked the first time the benchmark yield has been above the prevailing Fed funds rate of 5.25 per cent since the US central bank tightened overnight lending to that level in June 2006.
The session's peak yields followed a weak $8bn sale of new US 10-year bonds, in which foreign investors bought less than 11 per cent of those available.
Dominic Konstam, head of interest rate strategy at Credit Suisse, said: "Foreign investors are not buying this market and Treasuries are also having to compete with higher returns on risky assets."
Analysts say foreign buying - for example by the Chinese central bank - has been holding Treasury yields down in recent years. But China's announced investment in Blackstone, the private equity firm, and other signs of interest in other types of investment suggest foreigngovernments are starting to diversify their holdings.
Indicators of corporate credit risk - such as the European iTraxx crossover index of volatile credit derivative names - have risen slightly, but are yet to reflect signs of serious concern.
Kingman Penniman of KDP Investment Advisers, a US consultancy, said 5.25 per cent yields were psychologically significant and investors were still wondering if they would hold above that level. If so, he said, "at some point we will be repricing risk in a meaningful way, but that hasn't happened yet".
In an interview following Lehman Brothers' earnings report, Chris O'Meara, the investment bank's chief financial officer, said: "So far it's been an orderly back-up in rates. The thing nobody wants to see is a shock of some sort. Right now I don't think it's going to change anybody's mind about doing a deal."
posted by Carlos T Mock at 9:33 AM
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