U.S. 10-Year Yields Trades at 1-Week High on Greek Debt P

Treasury 10-year yields reached a one-week high after reports that Greek officials are closer to a deal to receive international funding, crimping haven demand.

U.S. debt also declined as Treasury prepared to sell $32 billion in three-year notes, the first of three auctions this week totaling $72 billion. The extra yield between 10-year notes and inflation-linked securities of the same maturity, a gauge of trader expectations for consumer price increases, was the highest since October.

“Maybe things are getting slightly better in Europe,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets Americas Inc., one of 21 primary dealers obligated to bid in U.S. debt auctions. “Rates started to move slightly higher.”

Yields on 10-year notes rose six basis points, or 0.06 percentage point, to 1.97 percent at 11:51 a.m. New York time, according to Bloomberg Bond Trader prices, the highest since Jan. 27. The 2 percent securities maturing in November 2021 fell 17/32, or $5.31 per $1,000 face amount, to 100 12/32.

The three-year notes scheduled for sale today yielded 0.33 percent in pre-auction trading, compared with 0.37 percent at the previous offer of the maturity Jan. 10.

Inflation Measure

The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt known as the break-even rate, was 2.23 percentage points, the most since Oct. 28. The average during the past decade is 2.14 percentage points.

“The Treasury market is trading lower this morning ahead as investors position themselves ahead of the latest wave of new issue supply ,” said Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee. Today’s auction “could provide a glimpse of investor demand for dollar-denominated assets before tomorrow’s $24 billion auction of the 10-year and Thursday’s $16 billion of the 30-year.”

Volatility in the Treasury market is near an eight-month low. Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, closed yesterday at 72.3, at almost the lowest since July 2007 and less than the five-year average of 111.8.

Trading Levels

Treasury market volume dropped yesterday to the lowest since Jan. 9. About $176 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker, below the one-year average of $277 billion.

Treasuries have lost 0.1 percent in 2012 as of Feb. 6, versus a gain of 9.8 percent last year, according to Bank of America Merrill Lynch indexes.

The U.S. plans to sell $24 billion of 10-year debt tomorrow and $16 billion of 30-year bonds on Feb. 9. This week’s auctions will raise $22.4 billion of new cash as maturing securities held by the public total $49.6 billion.

The amount of marketable securities outstanding rose to $10.07 trillion as of Jan. 31, up from $9.94 trillion at the end of last year.

“The market is coming off in anticipation of this week’s refunding auctions,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Demand at today’s auction will be driven by ongoing uncertainty surrounding the pace of the global expansion and a persistent flight to quality versus global risk assets.”

Greek Debt

Greek officials are working on the final draft of the document listing the budget and structural measures required to receive international funding, a government official said.

The official, who declined to be named, said the document would be discussed by political party leaders supporting the government of interim Prime Minister Lucas Papademos at a meeting later in the day. The official spoke to reporters in Athens.

U.S. government bonds tumbled on Feb. 3, pushing yields up 10 basis points, after the Labor Department said employers added 243,000 jobs in January. The median forecast of economists in a Bloomberg News survey was 140,000. The jobless rate fell to 8.3 percent, the least in three years.

Federal Reserve Chairman Ben S. Bernanke repeated today that the job market is still far from healthy after signs of economic improvement over the past year, and he called on lawmakers to reduce the long-term budget deficit.

Labor Path

“We still have a long way to go before the labor market can be said to be operating normally,” Bernanke said in testimony prepared for the Senate Budget Committee that is identical to remarks he gave on Feb. 2 to the House Budget panel.

Bernanke said after a two-day policy meeting Jan. 24-25 that the central bank is considering additional asset purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.

The central bank sold $1.3 billion of Treasury Inflation Protected Securities, or TIPS, maturing from July 2012 to January 2015 today under a program known as ‘Operation Twist,’ according to the New York Fed’s website.

The Fed 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.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE