Treasury 10-Year Note Yield Reaches 2% Before $24 Billion Securities Sale

Treasury 10-year note yields reached 2 percent for the first time in two weeks before today’s $24 billion auction of the securities.

U.S. debt fluctuated as Greece’s Prime Minister Lucas Papademos worked with the nation’s political leaders to negotiate terms to unlock a 130 billion euro ($172.5 billion) rescue package. The Federal Reserve purchased $1.8 trillion of longer-term Treasuries as part of its policy to bolster the economy.

“The Greek story is still driving the market, and delays here and delays there just continue to add uncertainty, which is supporting Treasuries,” said Sean Murphy, a Treasury trader at Societe Generale SA in New York, one of the 21 primary dealers that trade with the Federal Reserve. “We should continue to hold the recent range as long as the uncertainty remains, which means the auction should go fine.”

Yields on 10-year notes were little changed at 1.97 percent at 11:36 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in November 2021 traded at 100 9/32. The yield touched 2 percent for the first time since Jan. 25.

“2.03 percent on the 10-year is an important level we keep bumping into,” Murphy said. “If we breach that, we could easily go higher fairly quickly.”

Note Sale

The U.S. 10-year notes scheduled for sale today yielded 1.97 percent in pre-auction trading, compared with the record low of 1.90 percent the last time the securities were sold Jan. 11. Investors bid for 3.29 times the amount of debt offered in January, versus the average of 3.11 for the past 10 auctions.

The strength of recent auctions and a drop in prices “all point to a decent auction today,” William O’Donnell, head U.S. government-bond strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc’s RBS Securities primary dealer unit, wrote in a note to clients. “We advocate that longer-term investors use back-ups to reload on longs.”

A sale of three-year Treasuries yesterday drew a yield of 0.347 percent, compared with a forecast of 0.346 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers, companies that underwrite the U.S. debt.

The U.S. is scheduled to conclude this week’s auctions with a $16 billion sale of 30-year bonds tomorrow. The three offerings will raise $22.4 billion of new cash, with maturing securities totaling $49.6 billion.

Risk Pitch

Investors should hold stocks instead of bonds, according to Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager.

“You need to take on more risk,” Fink said on Bloomberg Television’s “First Up” with Susan Li in Hong Kong. Treasuries will have minimal returns with the Fed keeping interest rates low, he said. New York-based BlackRock oversees $3.51 trillion.

The U.S. central bank announced Jan. 25 that it will hold its target for overnight bank lending at virtually zero until at least late 2014. Fed Chairman Ben S. Bernanke said policy makers were considering buying bonds to sustain the expansion.

German Chancellor Angela Merkel’s government is readying plans for parliamentary votes on a bailout for Greece as soon as next week while Greek political leaders struggle for consensus on terms of the aid, the deputy floor leader of Merkel’s party said.

Greek Talks

Lucas Papademos is set to negotiate with leaders of the political parties supporting his caretaker government after he missed another deadline to secure a second aid package.

The difference in yields between 10-year TIPS and 10-year Treasury notes, known as the break-even rate, which represents traders’ expectations for inflation over the life of the securities rose for a fifth day to 2.21 percent. The CPI is forecast to rise 2.1 percent this year, down from 3.2 percent in 2011, according to the median estimate of 66 economists surveyed by Bloomberg.

The central bank is replacing $400 billion of shorter- maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.

The Fed bought bonds due from February 2036 to May 2041 today, according to the New York Fed’s website. It also plans to sell as much as $8.75 billion of Treasuries maturing from June to November 2013 later today.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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