Treasuries Poised for Longest Weekly Losing Streak Since April

Treasuries fell, with 10- and 30-year securities poised for their longest weekly losing streaks in more than six months, as European leaders’ efforts to resolve the sovereign-debt crisis damped refuge demand.

Ten-year yields approached a six-week high as U.S. retail sales rose more than forecast, easing concern the nation is headed for a recession. Group of 20 finance ministers began a two-day meeting in Paris amid speculation they’ll agree to give the International Monetary Fund greater firepower to resolve Europe’s debt woes.

“Europe finally seems to be getting its act together,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “That’s brought a lot of relief to the fear trade going on in Treasuries. U.S. data has been relatively strong. The idea of the U.S. heading into a double-dip is being put to the side.”

The benchmark 10-year yield increased seven basis points, or 0.07 percentage point, to 2.25 percent at 4:34 p.m. New York time, according to Bloomberg Bond Trader prices. Earlier it touched 2.26 percent. The yield, which has risen 17 basis points this week, reached 2.27 percent on Oct. 12, the most since Sept. 1. The 2.125 percent security due in August 2021 dropped 19/32, or $5.94 per $1,000 face amount, to 99 7/8.

Thirty-year bond yields gained nine basis points to 3.24 percent. They reached a three-week high of 3.25 percent Oct. 12, and have climbed 22 basis points for the week.

Weekly Losses

Both the 10- and 30-year Treasuries were headed for their third weekly losses. It would be the 10-year’s longest five-day decline since the three weeks ended April 8, and the longest for the bond since the three weeks ended Jan. 21.

Stocks advanced and the dollar and yen, traditionally considered havens, fell against most of their major counterparts. The Standard & Poor’s 500 Index rose 1.7 percent.

Treasuries have lost 0.9 percent this month, Bank of America Merrill Lynch indexes show, as the U.S. economy showed signs of improvement and European leaders made progress in resolving the debt crisis.

“We view rising yields as a buying opportunity,” James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley, one of the 22 primary dealers that trade with the Federal Reserve, wrote in a client note. “We think the upper limit for U.S. Treasury 10-year yields is 2.56 percent unless the market starts to price material upgrades to growth and inflation expectations.”

Bond-Dealer Survey

The Treasury Department asked bond dealers for their newest fiscal and economic forecasts for 2012 and 2013, and for recommendations on how it could issue floating-rate notes.

The survey, released in a statement today, is for an Oct. 28 meeting between Treasury officials and Wall Street bond dealers in advance of next month’s quarterly auctions of notes and bonds.

Treasuries extended losses as U.S. retail sales rose 1.1 percent in September, the most since February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for a 0.7 percent rise last month.

U.S. debt trimmed its decline after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly slipped this month. The gauge fell to 57.5 from 59.4 a month earlier, the group reported today.

Inflation Outlook

The yield gap between 10-year Treasuries and comparable inflation-indexed debt, a measure of traders’ outlook for consumer prices known as the break-even rate, widened to 1.99 percentage points, the highest since Sept. 8.

The extra yield investors get to hold U.S. 30-year bonds instead of five-year notes increased to 2.1 percentage points. The average is 2.5 percentage points this year and 1.6 percentage points over the past five years.

European officials are outlining a rescue plan that may include deeper investor losses on Greek bonds, higher bank capital levels and increased firepower for bailouts and the IMF. The plan’s elements emerged as G-20 finance ministers and central bankers began talks in Paris, seeking ways to end Europe’s two-year sovereign debt crisis.

“European policy makers have put out some very positive and optimistic messages, but they have been very vague, and at some point the market will need something more concrete and specific,” said Brett Rose, an interest-rate strategist at in New York at the primary dealer Citigroup Inc.

Shorter-Term Treasuries

While positive news from Europe may move Treasury yields higher, the effect on shorter-term notes will likely “be muted due to the Fed being on hold until 2013,” Rose wrote today in a note to clients. The central bank has pledged to keep interest rates near zero until mid-2013.

U.S. two-year note yields declined one basis point today to 0.27 percent.

Treasuries remained lower as the U.S. government posted its third consecutive annual budget deficit in excess of $1 trillion in the fiscal year ended Sept. 30. The shortfall registered $1.3 trillion in fiscal 2011, the second-highest on record, according to Treasury Department data issued today in Washington.

Today is the deadline for congressional committee leaders to submit recommendations to help the supercommittee charged with trimming the national deficit identify $1.5 trillion in savings over the next decade.

The Fed bought $4.597 billion today of Treasuries maturing from November 2019 to August 2021, according to the central bank’s website. The purchases are part of a program known as Operation Twist to keep borrowing costs down by buying $400 billion of longer-term Treasuries through June and selling an equal amount of shorter-term debt in the Fed’s portfolio.

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