(Bloomberg) — Treasuries surged along with German government bonds as concern Greece will exit the euro and trigger contagion across the region bolstered demand for the safest fixed-income securities.
Benchmark Treasury 10-year yields headed for the biggest decline in almost two years as the impasse in Europe dashed optimism that Greece would reach an agreement with its creditors. Treasuries had been falling this month as improving U.S. economic data boosted the case for the Federal Reserve to raise interest rates as early as September.
“Across the board, it is total risk-off,” said Barra Sheridan, a rates trader at Bank of Montreal in London. “Part of the strong reaction we are seeing in Treasuries this morning is because on Friday the North American market went home expecting a Greece deal to be done or some extension to the current bailout, but we didn’t get that.”
The Treasury 10-year yield fell 14 basis points, or 0.14 percentage point, to 2.33 percent at 6:54 a.m. New York time, according to Bloomberg Bond Trader data. The 2.125 percent note due May 2025 climbed 1 7/32, or $12.19 per $1,000 face amount, to 98 6/32. The yield is set for the steepest decline since September 2013.
Tsipras rejected the latest aid proposals by creditors on Friday, announcing a referendum on them for July 5 and saying he would advocate a “no” vote. The country’s current bailout expires Tuesday, when it is due to pay back the International Monetary Fund. Greece shut its banks and imposed capital controls to avert the collapse of its financial system.
“When you don’t know a lot of what could happen, the standard and rational response is to reduce your positions, reduce your risky bets and park your money somewhere safer,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “The only thing we really do know is we don’t know a lot of what could potentially happen.”
The U.S. 10-year note yield climbed to 2.49 percent on Friday, the highest level since June 11. It increased 22 basis points last week. Treasuries handed investors a loss of 1.6 percent this month through June 27, according to Bloomberg World Bond Indexes.
Net bearish bets on 10-year Treasury notes by hedge funds and other large speculators fell by more than half in the week through June 23 to 46,736 contracts.