Treasury 10-Year Yield at Almost 8-Week Low Before Sales

Yields on benchmark 10-year Treasuries were at almost an eight-week low before the U.S. sells $99 billion of notes this week amid speculation the Federal Reserve will keep borrowing rates at record lows.

Two-year note yields touched the lowest since Feb. 10 as the Treasury prepared to kick off the auctions today with the sale of $35 billion of the securities and the central bank begins a two-day policy meeting.

“It’s hard to argue that there is much value in Treasuries at this point, but given the uncertainties in the market it’s almost impossible to have any sustained selloff,” Adrian Miller, a fixed-income strategist at GMP Securities LLC in New York, said in a telephone interview. “So we sit at sub-2 percent yields and wait for clarity from the Fed and from overseas.”

The yield on the 10-year note climbed two basis points, or 0.02 percentage point, to 1.96 percent at 11:28 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note maturing in February 2022 fell 7/32, or $2.19 per $1,000- face amount, to 100 11/32. The yield dropped to 1.91 percent yesterday, the lowest since Feb. 28.

In addition to today’s auction, the U.S. plans to sell $35 billion of five-year debt tomorrow and $29 billion of seven-year securities on April 26.

The two-year notes being sold today yielded 0.27 percent in pre-auction trading, compared with 0.34 percent at the previous sale of the securities on March 27, the highest since July. Investors bid for 3.69 times the debt on offer last month, up from 3.54 times in February.

Two-Year Yield

The two-year yield was little changed at 0.26 percent after touching 0.254 percent, the lowest since Feb. 10.

The yield on the two-year note is below the 200-day moving average of 0.2628 percent and may encounter resistance at 0.25 percent, according to data compiled by Bloomberg. The yield may find support at the 100-day moving average of 0.2763 percent, the data show.

Resistance refers to an area on a chart where technical analysts anticipate orders to sell a security to be clustered and a support level is an area where they anticipate buy orders will be grouped.

Trading volume climbed yesterday to $170.6 billion after dropping April 20 to the lowest level this year, with about $130 billion of Treasuries changing hands through ICAP Plc, the world’s largest interdealer broker. The average in 2012 is $252 billion. Volume reached $439 billion on March 14, the highest since August.

‘Keeping Rates Low’

“People don’t want to short the Treasury market,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “The Fed is still going to be keeping rates low till 2014. You can’t fight the Fed.” A short is a bet the price of a security will drop.

The Netherlands sold 2 billion euros ($2.63 billion) of debt today amid optimism the collapse of its government yesterday won’t derail efforts to implement budget cuts. Spain auctioned 1.9 billion euros of bills.

Dutch 10-year bond yields declined nine basis points to 2.34 percent, while similar-maturity Spanish yields dropped 14 basis points to 5.86 percent.

Investors in U.S. Treasuries reduced expectations that prices of the securities will climb as the percentage of so- called long positions dropped in a weekly survey by JPMorgan Chase & Co.

The percent of net longs in the firm’s all-clients survey dropped to two percentages points, to 23 percent from 25 percent, in the week ended yesterday. The number of outright neutrals was unchanged at 57 percent. The level of outright shorts rose to 21 percent from 19 percent the previous week.

‘Hoping for Relief’

Ten-year yields may be in a range of 2 percent to 2.5 percent with the potential to rise to 2.75 percent in 2012, according to Charles Schwab Corp., which is based in San Francisco and manages $199 billion.

“We don’t anticipate that the Fed will change policy this year and it seems unlikely at this juncture that they will engage in more” asset purchases, Kathy A. Jones, a fixed-income strategist at the company, wrote in an e-mail.

The central bank bought $4.758 billion of Treasuries due from April 2018 to February 2020 today. The purchases are part of the bank’s effort to replace $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs.

U.S. central bankers bought $2.3 trillion of bonds in two rounds of so-called quantitative easing between December 2008 and June. They’ve also said they will probably keep their target for overnight lending between banks at almost zero at least until late 2014. Chairman Ben S. Bernanke is scheduled to hold a press conference tomorrow.

“Everybody is hoping for relief from insight from the Fed,” said Tradition Asiel’s Horrmann.

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

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

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