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Treasuries Rise as European Ministers Withhold Greek Aid Package

Treasuries rose for the first time in four days European finance ministers withheld a rescue package for Greece pending the nation’s approval of fiscal austerity measures.

Investors sought the relative safety of U.S. debt as stocks fell and Greece’s Finance Minister Evangelos Venizelos said a parliamentary vote set to begin this weekend amounted to a ballot on euro membership. Greece obtained an approval from the cabinet to submit laws for new budget measures to secure a second rescue package from Europe. Volatility in the Treasury market increased from an eight-month low.

“It has injected an element of anxiety that turned markets into risk off mode,” said Tony Crescenzi, a strategist at Pacific Investment Management Co. in Newport Beach, California, which manages the world’s biggest bond fund. “It’s too much risk for risk-conscious investors to want to take.”

Yields on 10-year notes slid five basis points, or 0.05 percentage point, to 1.99 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 gained 14/32, or $4.38 per $1,000 face amount, to 100 4/32. The yield is up six basis points this week.

A gain of more than one point in the 30-year bond pushed the yields down as much as seven basis points before trading at 3.14 percent. The Standard & Poor’s 500 Index declined 0.7 percent.

Weekend Trade

Hedge-fund managers and other large speculators decreased their net-short position in 30-year bond futures in the week ending Feb. 7, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 11,817 contracts on the Chicago Board of Trade. Net-short positions fell by 5,364 contracts, or 31 percent, from a week earlier, the Washington-based commission said in its Commitments of Traders report.

“We’re seeing good buying in the back end,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “People are not wanting to be short. We’ve got more today to worry about.” A short is a bet the price of a security will drop.

Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, closed yesterday at 83.2 basis points, up from 70.2 basis points reached Feb. 2 that was the lowest level since July 2007. The five-year average is 111.9 basis points.

Treasury market volume rose yesterday to the highest since Feb. 3. About $305 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker, above the one-year average of $276 billion.

Bidding at the government’s three note and bond offerings this week totaling $72 billion was weaker than similar sales last month. Treasury sold $16 billion of 30-year bonds yesterday, $24 billion of 10-year notes Feb. 8 and $32 billion of three-year notes Feb. 7.

New Cash

This week’s auctions raises $22.4 billion of new cash as maturing securities held by the public total $49.6 billion. The Treasury announced plans to sell $9 billion of 30-year Treasury Inflation Protected Securities on Feb. 16.

Euro-area leaders declined to approve a 130 billion-euro ($171 billion) aid package for Greece yesterday at an emergency meeting because the government fell short on austerity demands.

“There are more worries that the Greek deal, that sounded good yesterday, has more bumps in the road,” Guggenheim Partners’ Rogan said.

German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin today that Greece is missing its debt-cutting targets, according to two people who took part in the meeting. Chancellor Angela Merkel’s government plans to ask lawmakers to vote on a second Greek bailout on Feb. 27 if political parties in Greece meet the conditions needed to win more aid.

Yield Difference

The difference between yields on 10-year German bunds and 10-year U.S. Treasuries widened by eight basis points, as the Treasury note yield remained above the bund for the second straight day. Bunds rose, with yields falling the most in a month after European finance ministers held back the Greece rescue package.

“Everybody got way ahead of themselves on this Greek deal,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “Now people are coming back to reality. Everybody has to take risk off because the decision will be made over the weekend.”

The Fed is in the process of 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.

Federal Reserve Chairman Ben S. Bernanke said efforts to spur economic growth are being blunted by impediments to mortgage lending, and he called for further steps to heal the housing market.

Housing Issue

“We have helped lower mortgage rates to the lowest point in many, many decades,” Bernanke told homebuilders today in Orlando, Florida. “Yet we are not seeing as much activity as we would like to see.”

Bernanke, who repeated that the pace of the recovery has been “frustratingly slow,” didn’t discuss the outlook for monetary policy.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for February fell to 72.5 from 75 at the end of last month. Economists projected a reading of 74.8, according to the median estimate in a Bloomberg News survey.

The Fed announced Jan. 25 it will keep its target for overnight bank lending at virtually zero until at least late 2014. Bernanke said policy makers were considering buying bonds to sustain the expansion.

The central bank purchased $1.39 billion of Treasury Inflation Protected Securities due from April 2028 to February 2041 today as part of a plan known as ‘Operation Twist,’ according to the New York Fed’s website.

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