April 27 (Bloomberg) -- Treasuries rallied the most in a week on speculation the battle to contain swine flu will be costly enough to slow the recovery in the U.S. economy.
Notes gained after a growing number of flu cases in the U.S. and Mexico led the Obama administration to declare a public health emergency and release stockpiles of medicine. Government securities also advanced as the Federal Reserve prepared to buy Treasuries due from September 2013 to February 2016 today as part of its plan to keep down borrowing costs.
“The swine flu emergency helped fuel the flight to safety,” said Kenny Borowicz, a senior vice president at MF Global Singapore Ltd., part of the world’s largest broker of exchange-traded futures and options contracts. “It could cause a slowdown in the economy if the breakout continues.”
The yield on the 10-year note fell four basis points to 2.96 percent as of 10:24 a.m. in Tokyo, according to data compiled by Bloomberg. The price of the 2.75 percent security maturing in February 2019 rose 9/32, or $2.81 per $1,000 face amount, to 98 7/32. A basis point is 0.01 percentage point.
Two-year yields fell three basis points to 0.94 percent before the Treasury Department sells $40 billion of the securities today.
Swine flu cases were confirmed in Canada yesterday and suspected in Brazil, Europe and New Zealand. In the U.S., 20 people have contracted the disease in five states.
The illness added to concern the U.S. economy will keep contracting.
‘Some Time’
Gross domestic product will shrink “for some time to come,” said Lawrence Summers, director of the White House National Economic Council.
“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said yesterday on “Fox News Sunday.”
The International Monetary Fund said last week the world’s biggest economy would shrink 2.8 percent this year and have no growth in 2010.
Yields indicate Federal Reserve Chairman Ben S. Bernanke’s efforts to repair global credit markets are working.
The Libor-OIS premium that indicates banks’ reluctance to lend to each other fell to 0.87 percentage point on April 24, the lowest level since before Lehman Brothers Holdings Inc. collapsed in September, according to data compiled by Bloomberg.
Companies have raised a record $468 billion in U.S. bond sales this year.
Prices of the most senior portions of mortgage bonds backed by prime U.S. jumbo loans have climbed 24 percent in the past five weeks, according to London-based Barclays Capital.
To contact the reporter on this story: Wes Goodman in Singapore at [email protected].
