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U.S. 30-Year Yields Touch Lowest This Year on Europe Concern

May 4 (Bloomberg) -- Treasuries climbed, pushing 30-year bond yields to the lowest level in more than four months, as concern that a rescue plan for Greece hasn’t contained Europe’s debt crisis boosted demand for the safest assets.

The gains sent the yield on the 10-year note to a two-month low even as Spain’s prime minister said rumors of a bailout for his country are “madness.” Stocks and raw materials tumbled, and the euro fell below $1.30 today for the first time since April 2009. Euro-region finance ministers approved a 110 billion-euro ($143 billion) rescue for Greece over the weekend.

“People are moving out of Europe, out of commodities and equities and into U.S. fixed income,” said Dan Mulholland, a Treasury trader in New York at Royal Bank of Canada, one of 18 primary dealers that trade with the Federal Reserve. “We’re seeing some real-money asset reallocation out of equities and into bonds. The euro is getting decimated.”

The yield on the 30-year bond dropped 10 basis points, or 0.10 percentage point, to 4.42 percent at 4:38 p.m. in New York, according to BGCantor Market Data. It touched 4.41 percent, the lowest level since Dec. 18. The 4.625 percent security due in February 2040 climbed 1 22/32, or $16.88 per $1,000 face amount, to 103 10/32. The benchmark 10-year Treasury yield fell eight basis points to 3.60 percent and touched 3.59 percent, the lowest since March 4.

‘Yield Play’

“It’s a yield play and it’s an across-the-market play,” Royal Bank of Canada’s Mulholland said. “German bunds are yielding 3.64 percent and the Treasury bond is yielding 4.45 percent. Which would you buy?”

The Standard & Poor’s 500 Index slid 2.4 percent, and the MSCI World Index, a measure of stocks in 23 developed markets, tumbled 2.6 percent. Crude oil for June delivery plunged as much as 4.2 percent to $82.55 a barrel on the New York Mercantile Exchange.

“The perception is that it’s not only going to be Greece they need to help out,” said Jeffry Feigenwinter, head of Treasury trading in New York at primary dealer BNP Paribas SA. “Today is about contagion.”

The euro fell against most of its major peers after European Union spokesman Amadeu Altafaj said aid to Greece might not be approved by all governments this month, when the nation needs to refinance 8.5 billion euros in debt.

Restructuring ‘Potential’

“The uncertainty associated with the remaining potential for Greek debt to be restructured despite the announced bailout has aided the flight-to-quality nature of the uptrade in Treasuries and weighed on domestic equities as well,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

Treasuries briefly pared gains after Spanish Prime Minister Jose Luis Rodriguez Zapatero said rumors of a bailout for Spain are “complete madness” and reports showed U.S. factory orders and pending home sales exceeded forecasts in March.

Spain has “strong solvency,” Zapatero told reporters in Brussels today.

Factory orders in the U.S. unexpectedly rose, with bookings increasing 1.3 percent, the Commerce Department said. The median forecast in a Bloomberg survey was for no increase. An index of signed home-purchase agreements rose 5.3 percent, the National Association of Realtors said. A 5 percent gain was forecast.

Ten-year yields have fallen from the 4.01 percent they reached on April 5, the highest level since October 2008, as concern Greece would default on its debt pushed investors to the safety of U.S. government securities. The gap between 2- and 10-year yields, known as the yield curve, narrowed to 2.65 percentage points today after touching a record high of 2.94 percentage points on Feb. 18.

Brink of Breakthroughs

The 10-year note yield, the yield curve and 10-year swap spreads are all on the brink of breaking through long-held technical ranges, according to primary dealer Royal Bank of Scotland Group Plc.

Ten-year note yields closing below 3.667 percent; the difference between 2- and 10-year yields finishing the day less than 2.69 percentage points and a 10-year swap spread above 1 basis point would all represent “a confirmation of trend changes,” William O’Donnell, a U.S. government bond strategist at RBS Securities in Stamford, Connecticut, wrote today in a note to clients.

The Treasury may reduce the amount of three-year notes it sells next week, the first decrease in the size of the maturity’s monthly auction since before the collapse of global credit markets.

The U.S. will sell $80 billion of notes and bonds next week, according to the median forecast in a Bloomberg News survey of all of the primary dealers, which are required to bid at U.S. debt auctions. They expect sales of $39 billion in 3-year notes, $25 billion in 10-year debt and $16 billion in 30-year bonds. The 10- and 30-year sizes would match record levels. The government will announce the amounts tomorrow.

The U.S. could reduce issuance of coupon debt by around $90 billion by the end of the 2010 fiscal year in September, according to RBS Securities.

To contact the reporter on this story: 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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