Treasuries Becalmed as Debt Ceiling Approaches With Gross Buying

The world’s biggest investors are finding U.S. government bonds becoming safer, not more risky, as the deadline to avoid the first American default approaches.

The yield on 10-year U.S. bonds dropped to a two-month low of 2.58 percent on Oct. 3, after Treasury Secretary Jacob J. Lew said the government won’t be able to pay its debts in 14 days unless Congress raises the $16.7 trillion borrowing ceiling. While short-term bill rates and the cost to insure against a default have risen, volatility in Treasuries has fallen, a sign that investor confidence in the Federal Reserve is outweighing worries over the budget battle among U.S. political leaders.

BlackRock Inc. Chairman and Chief Executive Officer Laurence D. Fink and Pacific Investment Management Co. Co-Chief Investment Officer Bill Gross, who lead the world’s biggest bond firms, dismiss the possibility of a default after the first government shutdown in 17 years as House Republicans failed to agree on a budget with Senate Democrats and President Barack Obama. With the closures shaving at least 0.1 percent off economic growth each week, Fed policy makers said they will probably keep buying $85 billion a month of bonds.

“The dysfunction in Washington just makes the Fed more likely to be supportive of the market,” Mark MacQueen, a partner and money manager in Austin, Texas, at Sage Advisory Services Ltd., which oversees $11 billion, said in a telephone interview Oct. 1. “We should stick to the underlying economic fundamentals and not worry about 72 hours in Washington. The real fear of a major rate increase is diminishing as long as this nonsense continues.”

http://www.bloomberg.com/news/2013-10-06/treasuries-becalmed-as-debt-ceiling-approaches-with-gross-buying.html