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U.S. 30-Year Yields Fall to Lowest Since 2009 on Fed Debt Buying

Treasury 30-year bonds rose, pushing yields to the lowest level since January 2009, as the Federal Reserve bought $2.5 billion of longer-term debt and European fiscal concern overshadowed U.S. economic reports.

The extra yield for holding long bonds instead of five-year notes was the lowest in almost two years after the Fed started the program known as Operation Twist. Yields on 10-year notes briefly pared their decrease as the Institute for Supply Management reported manufacturing unexpectedly accelerated.

“Although economic data in the U.S. is improving, the major concern is on Europe,” said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners LLC, a brokerage for institutional investors. “We’ve seen Treasuries rally since the initial sell-off when ISM was announced. We’ll be watching Europe very closely.”

Yields on 30-year bonds fell 19 basis points, or 0.19 percentage point, to 2.73 percent at 4:59 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.75 percent securities maturing in August 2041 rose 4 1/4, or $42.50 per $1,000 face amount, to 120 27/32. The yields reached the lowest in almost three years.

The Standard & Poor’s 500 Index dropped 2.9 percent, falling below 1,100 for the first time in more than a year. Crude oil for November delivery fell 3 percent to $75.80 a barrel in New York.

The long-bond yields dropped 146 basis points in the third quarter, the biggest decrease since a plunge of 164 basis points in the last three months of 2008.

Ten-Year Notes

A one-point gain in benchmark 10-year notes today pushed yields down as much as 15 basis points to 1.76 percent, the lowest level since Sept. 23, when the record low of 1.6714 percent was set. Five-year note yields dipped 10 basis points to 0.85 percent.

The spread between five- and 30-year securities decreased to 189 basis points, the narrowest on a closing basis since October 2009.

The Fed bought Treasuries maturing from February 2036 through August 2041 today. Fourteen of the 15 securities listed for possible purchase were acquired, according to a New York Fed statement.

“If you know a big buyer is coming in, you don’t want to be caught short,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “People are trying to be proactive.”

Fed Debt Buying

Today’s purchases are the first under a program announced Sept. 21 to buy $400 billion of bonds with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less to keep borrowing costs down.

Treasuries returned 6.4 percent in the third quarter, the most since the final three months of 2008, Bank of America Merrill Lynch data show.

Bill Gross, the manager of the world’s biggest bond fund, said the global economy risks lapsing into recession with the pace of growth falling below the “new normal” level the firm has predicted since 2009.

“Sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack,” Gross wrote in a monthly investment outlook posted on Newport Beach, California-based Pacific Investment Management Co.’s website today. “If global policy makers could focus on structural as opposed to cyclical financial solutions, new normal growth as opposed to recession might be possible.”

Economists have cut their estimates for the 10-year yield in March 2012 to 2.56 percent, down from a projection of 3.75 percent in July, the biggest cut since January 2009.

Germany’s Stance

German Finance Minister Wolfgang Schaeuble opposed moves to boost the European Financial Stability Facility until the final three countries approve the fund’s latest upgrade. Slovakia, the Netherlands and Malta have yet to ratify an earlier decision to expand the fund to 440 billion euros ($580 billion).

“Speculating makes no sense,” Schaeuble told reporters before a meeting of European finance ministers in Luxembourg tonight. “We will wait until the other countries that haven’t ratified it also do so.”

Greece’s government pledged yesterday to fire workers as part of a 6.6 billion-euro austerity package. The steps outlined by Prime Minister George Papandreou’s government would leave a 2012 budget deficit equivalent to 6.8 percent of gross domestic product, missing the 6.5 percent goal set with the European Union, International Monetary Fund and European Central Bank.

Manufacturing Advances

Bonds briefly pared their gains after the Institute for Supply Management’s U.S. factory index unexpectedly increased to 51.6 in September from 50.6 in the previous month. The median forecast of 82 economists in a Bloomberg News survey was for a reduction to 50.5. A level of 50 is the dividing line between growth and contraction in U.S. manufacturing.

Dallas Fed President Richard Fisher said today in an interview on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays that he is seeing “minor momentum” in the U.S. economy, with business officials he talks with saying they aren’t moving backward.

“Clearly, the economy is anemic,” he said. “Our job is to refuel the tanks; we’ve done that.” Now “it’s up to the fiscal authorities” to do their work, he said.

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