Treasury Yield Near One-Week Low on Speculation Portugal to Seek Bailout

Treasury yields were near a one-week low on speculation Portugal will follow Greece and Ireland in seeking a bailout from the European Union, increasing investor appetite for the relative safety of U.S. debt.

Demand for the haven of Treasuries will reverse a selloff that pushed yields to a seven-month high in December, Nomura Securities International Inc. said in a report. The Federal Reserve is scheduled to buy $7 billion to $9 billion of Treasuries due from February 2018 to November 2020 today as part of its plan to spur the economy, according to its website.

“I’m bullish” on Treasuries, said Zeal Yin, who helps oversee the equivalent of $51.1 billion as a bond investor at Shin Kong Life Insurance Co., Taiwan’s second-largest life insurer. “The European situation is not resolved. Flight-to- quality flows will continue. I bought last week.”

Ten-year notes yielded 3.32 percent as of 9:53 a.m. in Singapore, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 was 94 5/32.

Treasuries are closed in Japan today for a holiday, according to the Securities Industry and Financial Markets Association in New York. Trading will take place as usual in the U.K. and the U.S., the group’s website says.

Ten-year rates dropped to 3.28 percent on Jan. 5, which was the least this year. They have declined from 3.56 percent on Dec. 16, which was the most since May.

Safer Assets

“Demand will return especially in the form of flight-to- quality type bids given the ongoing concerns over the eurozone,” George Goncalves and Aaron Kohli, analysts at Nomura in New York, wrote in a report today.

The euro fell as far as $1.2867, the weakest level since Sept. 14, before trading little changed.

Germany and France will pressure Portugal to seek aid from the European bailout fund soon to prevent contagion to other countries such as Spain and Belgium, Der Spiegel reported on Jan. 8, without saying where it got the information. The German Finance Ministry said yesterday that Germany isn’t pressing Portugal to tap the euro area’s rescue fund.

The extra yield investors demand to hold 10-year Portuguese debt instead of same maturity German bunds widened to 4.33 percentage points on Jan. 7, the most since November.
Treasuries are still down 0.4 percent over the past month, according to Bank of America Merrill Lynch indexes, on signs of improvement in the economy.

Fed Vice Chairman Janet Yellen said the central bank’s asset purchases will add 3 million jobs to private payrolls and have prevented the country from slipping into deflation.

“Inflation is currently a percentage point higher than would have been the case,” she said Jan. 8 in a speech in Denver. “In the absence of such purchases, the economy would now be close to deflation.”

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.