Treasuries Gain on Retail Sales Pace, Greek Debt Deal Delays

Treasuries rose, pushing 10-year note yields to a one-week low, after a report showed retail sales in January were weaker than forecast, renewing concern consumer spending won’t power the economic recovery.

Yields fell for a third day as European finance ministers postponed a meeting in Brussels to discuss Greece’s rescue. U.S. retailers’ sales showed Americans took advantage of post-holiday discounts, indicating households were frugal. The Federal Reserve purchased $4.95 billion of notes today.

“We had the buyback, the Greek meeting postponed and a disappointing retails sales number, all of which has given a lift to the long end,” said Scott Graham, head of government bond trading at Bank of Montreal’s BMO Capital Markets unit in Chicago, one of the 21 Primary dealers that are required to bid on the securities.

Yields on 10-year notes fell four basis points, or 0.04 percentage point, to 1.94 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 rose 11/32, or $3.44 per $1,000 face amount, to 100 18/32. The yield reached the lowest since Feb. 7.

U.S. 30-year bond yields fell three basis points to 3.09 percent, after reaching the least since Feb. 3.

Yield Differences

The difference between the yield on the two-year note and the 10-year security, the so-called yield curve, dropped to 1.65 percentage points today, the least since Feb. 3. A narrowing yield curve suggests investors anticipate slow economic growth and inflation.

Treasury market volume dropped yesterday to the lowest since Feb. 6. About $218.6 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker, below the one-year average of $275 billion.

“The flows are anemic,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “We are still stuck in a range.”

Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, closed Feb. 13 at 78.8 basis points, below the five-year average of 111.9 basis points. The gauge on Feb. 2 touched 70.2 basis points, the lowest level since July 2007.

Bond Losses

U.S. debt securities have fallen in 2012 on speculation Europe will contain its sovereign-debt crisis and America’s economic recovery will be sustained. Treasuries have lost 0.4 percent this year, according to a Bank of America Merrill Lynch index. German bunds, perceived to be the euro region’s safest government assets, have dropped 0.5 percent.

Euro-area finance ministers will discuss Greece on a conference call tomorrow, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement. Juncker cited further technical work to be carried out by Greece and the troika as well as the lack of political assurances from Greek leaders as reasons for not convening a meeting in Brussels.

Treasury yields advanced earlier as German investor confidence rose in February to a 10-month high and Italy’s borrowing costs dropped.

The ZEW Center for European Economic Research in Mannheim said its German index of investor and analyst expectations, which is designed to predict economic developments six months in advance, rose this month to 5.4 from minus 21.6 in January. That’s the highest since April 2011 and the third straight increase. Economists forecast a gain to minus 11.8, according to the median of 40 estimates in a Bloomberg News survey.

Moody’s Rates

Moody’s Investors Service cut the credit ratings of six European countries. Italian and Spanish borrowing costs plunged to the lowest in at least 11 months at debt sales today as investors ignored the downgrades.

Global growth will slow to 2.17 percent this year from 2.69 percent in 2011, according to Bloomberg News surveys of economists. The U.S. economy may expand by 2.2 percent, while the euro area contracts by 0.5 percent, surveys showed.

The 0.4 percent U.S. retail sales gain followed little change in December that was initially reported as a 0.1 percent increase, Commerce Department figures showed today. Last month’s advance was half the median forecast of economists surveyed by Bloomberg News, reflecting an unexpected drop at auto dealers. Excluding cars, demand climbed 0.7 percent, more than projected.

Fed Chairman Ben S. Bernanke said last week that the 8.3 percent January unemployment rate reported Feb. 3 understates weakness in the labor market since some people are leaving the workforce because they can’t find jobs, and others are taking part-time work because they can’t find full-time employment.

The Fed purchased Treasuries due from February 2020 to November 2021 today as part of a plan announced in September to replace $400 billion of shorter maturities in its holdings with longer-term debt to cap borrowing costs. The central bank last month extended its pledge to keep rates near zero at least through late 2014.

“The buybacks are taking out 90 percent of everything that’s issued, and it continues,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., a primary dealer.

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