Safe-haven buying boosts bonds

NEW YORK (BestGrowthStock) – U.S. Treasury debt prices rose on Friday as worries over the potential fallout from a euro zone debt crisis had investors turning away from stocks for the lower-risk haven of government debt.

Treasuries started the holiday-shortened session by tracking German Bunds in rising speculation Portugal will follow Ireland in seeking bailout funding and that the debt crisis across the Atlantic could spread.

“A severely negative tone from Europe dominates the trading,” said Andrew Brenner, managing director at Guggenheim Partners in New York.

Ireland has sought a bailout from international lenders in an effort to shore up the country’s banks and secure cheaper funding. Some investors expect Portugal, and perhaps even Spain, will eventually follow suit.

Benchmark 10-year Treasury notes were trading 13/32 higher in price to yield 2.87 percent, down from 2.91 percent late Wednesday, while the 30-year bond was 1-7/32 higher to yield 4.21 percent compared with 4.28.

“At this point the U.S. is seeing the flight-to-safety bid,” said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle.

Safety-buying of U.S. government debt on Friday was also supported by concerns over escalating tensions between North Korea and South Korea. The North shelled a South Korean island earlier this week.

Stocks also slipped, led by commodity-related shares, as investors fled from riskier investments on worries that euro zone debt problems may continue to spread.

LIBOR JUMPS

The worries over fiscal troubles in Europe were also reflected in higher bank-to-bank lending rates, where Libor three-month dollar rates rose for a third consecutive day.

Three-month Libor jumped on Wednesday for the first time since October as borrowers in peripheral European nations sought to swap euro holdings into US dollars, analysts at Credit Suisse said in a report.

Borrowers in Europe have been exchanging euros for US dollars in the foreign exchange swap market, they said.

This, combined with larger than expected take up of the ECB’s three-month longer-term refinancing operation (LTRO) on Wednesday, suggests that “some of the peripheral European borrowers have taken extra funding from the European Central Bank and will seek to swap it into USD to ensure they are fully funded over the turn and beyond,” they said.

The benchmark three-month London interbank offered rate (Libor) rose to 0.29438 percent, its highest level since early September. But it was still more than 0.20 percentage point below the levels in June during the height of Greece’s fiscal crisis.

The banks also raised their unsecured loan rates in the wake of a move from European clearing house LCH.Clearnet Thursday. It increased its margin requirement on Irish sovereign debt by 15 percentage points to 45 percent of net positions of its margin rate in response to rising Irish debt cost in the open market.

U.S. markets were closed on Thursday for the Thanksgiving holiday, and the Treasury market was set for an early close at 2 p.m. Eastern time (1900 GMT) on Friday.

(Reporting by Chris Reese, Karen Brettell and Richard Leong: Editing by Chizu Nomiyama)

Safe-haven buying boosts bonds