Wall Street’s biggest banks boosted their Treasury holdings to
the highest level in more than two years, and one of them says
that’s a warning sign for the market.
The 22 primary dealers including Goldman Sachs Group Inc. and
Citigroup Inc. that underwrite the U.S. debt and make a market in
the securities held $113.5 billion of Treasurys in the week ended
Feb. 10, based on the most recent central bank data. The amount is
the most since October 2013.
The figures suggest investors are unloading securities on to the
Wall Street banks, which are having trouble reselling the bonds,
according to Nomura Holdings Inc., one of the dealers. Treasurys
were little changed this week, failing to extend a rally from
earlier in the month, as a selloff in stocks eased and investor
demand for the relative safety of government securities ebbed.
“Dealers are getting hit with this paper,” said John Gorman, the
head of dollar debt trading for Asia and the Pacific at Nomura in
Tokyo. “Their customers are bearish and selling.”
Treasury 10-year note yields rose two basis points, or 0.02
percentage point, to 1.76 percent as of 1:18 p.m. in New York,
according to Bloomberg Bond Trader prices. The 1.625 percent
security due in February 2026 fell 7/32, or $2.19 per $1,000 face
amount, to 98 23/32. The yield has climbed after dropping to 1.53
percent earlier this month, which was 15 basis points from the
record low reached in July 2012.
Up-And-Down Week
It’s been an up-and-down week for U.S. government securities,
which gained Thursday as BNP Paribas SA and Credit Suisse Group
AG cut their yield forecasts. Ten-year yields fell eight basis
points on Thursday, after rising seven basis points in the
previous two days.
A report by EPFR Global on Friday showed investors ditched
European bonds in favor of U.S. fixed-income assets in the week
ended Feb. 17 as they sought higher yields. Market volatility
and expectations that the European Central Bank will ease policy
further dragged yields of $2.2 trillion worth of debt in the
region below zero.
Investors redeemed more than $1.5 billion from European bond
funds while adding almost $6 billion to U.S. counterparts in
that period, according to EPFR Global data.
The yield premium that U.S. 10-year Treasurys offered over
that of German bunds is at 1.53 percentage points, after falling
to 1.43 percentage points on Feb. 10, the least on the closing
basis since September.
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