Moving the Market

Mortgage-backed Securities: -12/100 at the close 

Treasuries Fall on U.S. Recovery Signs, Greece Rescue Request

Treasuries declined as purchases of new homes in the U.S. surged in March by the most in almost five decades and Greece appealed for help to avoid a default.

Two-year note yields reached the highest level in almost two weeks as orders for durable goods excluding transportation rose in March by the most since the recession began in December 2007. Greece called for the activation of a financial lifeline of as much as 45 billion euros ($60 billion). Treasuries posted a weekly loss on concern rising debt supply will deter buyers at the next week´s auctions.

"The combination of stronger economic data and the set-up for supply has led to slightly higher rates," said Jeffry Feigenwinter, head of Treasury trading in New York at BNP Paribas SA, one of 18 primary dealers required to bid at Treasury auctions.

Home Sales, Durable Goods

Sales of new homes climbed 27 percent, the most since April 1963, to an annual pace of 411,000 that exceeded the highest forecast of economists, figures from the Commerce Department showed today in Washington.

"It was affected by the first-time homebuyer tax credit," said Ward McCarthy, chief financial economist at primary dealer Jefferies & Co. Inc. in New York. "The bulk of sales was in the low end of the price spectrum. It´s good news and against the backdrop of other housing data, it strongly suggests the housing market is stabilizing."

The 2.8 percent increase in bookings for goods meant to last at least three years, excluding cars and aircraft, was four times larger than the median forecast of economists, figures from the Commerce Department showed today in Washington. Total orders unexpectedly dropped 1.3 percent.

"The components were very strong, specifically core capital goods," said William O´Donnell, U.S. government bond strategist at primary dealer Royal Bank of Scotland Plc in Stamford, Connecticut. "We´ve rallied further from attractive levels that have brought buyers in of late. If we do not cheapen up further taking down the auctions could be more difficult."

Debt Sales

The U.S. will next week sell $44 billion in two-year notes, $42 billion in five-year securities, $32 billion in seven-year debt and $11 billion in five-year Treasury Inflation Protected Securities next week, the Treasury announced yesterday.

President Barack Obama has boosted marketable U.S. debt to a record $7.76 trillion, Treasury figures show. Obama´s proposed budget calls for a $1.6 trillion deficit in 2010, compared with last year´s record $1.4 trillion shortfall.

The Treasury will begin reducing note issuance as U.S. borrowing needs diminish, "with the bulk in the front end" of the Treasury curve, Anshul Pradhan, an interest-rate strategist in New York at primary dealer Barclays Plc, wrote in a note to clients.

Two- and three-year issuance will decline by $80 billion from fiscal year 2010 to 2011, while debt issuance of 10- and 30-year debt will decline by as much as $20 billion, Pradhan wrote.

?Will Remain High´

"We don´t expect large cuts on the long end, and issuance will remain high for several years," Pradhan said in an interview. "The front end cuts will contribute to steepening pressure on the curve."

The Treasury asked bond dealers about the best way to shrink the size of its long-term debt auctions as the economy recovers and the government no longer needs to expand its borrowing calendar.

"Debt managers are contemplating a reduction in coupon sizes as the fiscal outlook improves. How should Treasury accomplish such a reduction?" the Treasury asked in a quarterly survey released today.

Ten-year yields have fallen from the 4.01 percent they reached on April 5, the highest level since October 2008, as concern Greece might default on its debt had spurred investors to buy what they consider the safest assets even as the government sold record amounts of securities.

?National Need´

Greek Prime Minister George Papandreou today said "it is a matter of national need to ask officially" for the activation of the European Union-led aid mechanism.

The appeal for help from the European Union and International Monetary Fund follows a surge in borrowing costs to what Papandreou called unsustainable levels that undermine efforts to cut a budget deficit of more than four times the EU limit. Greek bonds and stocks rallied after the announcement.

Futures on the CME Group Inc. exchange show a 66 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its December meeting, down from 75 percent odds a month ago. The Fed has kept the rate in a range of zero to 0.25 percent since December 2008. Last month Fed officials repeated a pledge to keep rates low for an "extended period."