Treasuries Advance on Revived European Sovereign-Debt Concern in Ireland

Treasuries rose on revived concern that Europe’s sovereign-debt crisis will get worse, encouraging demand for government debt.

U.S. notes and bonds advanced as John Gormley, leader of Ireland’s Green Party, said the country’s bond spreads would widen if Ireland considered renegotiating with Anglo Irish Bank Corp. bondholders.

“There’s a bank issue there that isn’t going away,” said Thomas Tucci, head of U.S. government bond trading in New York at Royal Bank of Canada, one of the 18 primary dealers that trade directly with the Fed. “It coincides with the fact that we bounced off some significant levels here.”

The 30-year bond yield dropped 5 basis points, or 0.05 percentage point, to 3.88 percent at 8:10 a.m. in New York, according to BGCantor Market Data. The price of the 3.875 percent security maturing in August 2040 gained 25/32, or $7.81 per $1,000 face amount, to 99 27/32.

The long bond’s yield was headed for a fourth weekly gain in the longest stretch of advances since May 2009 on evidence the threat of deflation is waning.

The consumer price index increased 0.3 percent for a second month in August, according to the median forecast of 77 economists in a Bloomberg News survey. The report from the Labor Department is due at 8:30 a.m. in New York.

Longer-term U.S. debt dropped yesterday after the Labor Department reported that producer prices climbed last month more than economists forecast, rising 0.4 percent in August after gaining 0.2 percent in the previous month. Inflation erodes the value of fixed-income securities.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

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