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Treasury 10-Year Yield at Almost 3-Week Low on Europe

Treasury 30-year bonds fell for the first time in five days on speculation a European Central Bank allotment of three-year loans to banks tomorrow will bolster investor appetite for riskier assets.

Treasuries erased gains earlier as consumer confidence rose to a one-year high and stocks rallied, reflecting reduced demand for haven assets. Fed Chairman Ben S. Bernanke is forecast to retain a cautious outlook on the economy when he gives his semi-annual monetary policy report to House lawmakers tomorrow. The ECB may grant the region’s region banks 470 billion euros ($633 billion) in its second longer-term refinancing operation, according a Bloomberg News survey.

“The market has settled at these yields, and is in an anticipatory mood with LTRO and Bernanke’s comments coming tomorrow, which are hard to handicap,” said Russ Certo, managing director of rates trading at Gleacher & Co. in New York. “There are a lot of people looking to sell the market, but they are afraid with more Fed buying and month-end coming and more fallout from overseas.”

Thirty-year bond yields rose three basis points, or 0.03 percent, to 3.07 percent at 5:01 New York time, according to Bloomberg Bond Trader prices. The 3.125 percent securities maturing in February 2042 fell 1/2, or $5 per $1,000 face amount, to 101.

Benchmark 10-year note yields gained two basis points to 1.94 percent, after touching 1.89 percent, the lowest since Feb. 6. The Standard & Poor’s 500 Index added 0.3 percent.

Longer Term

The 10-year note yield is up 14 basis points this month, while 30-year bond yields have added 13 basis points.

U.S. Treasuries investors increased bets to the highest level since December 2010 that the price of the securities will rise, a survey by JP Morgan Chase & Co. showed.

The percent of longs in the firm’s “all clients” survey rose to 26 percent for the week ending yesterday. The percent of net longs in the survey rose to 13 percent from 2 percent the previous week.

About 60 percent of the clients surveyed were neutral, making it the lowest level since March 2011 and down from 68 percent the previous week. The survey showed the percent of so-called “shorts” dropped to 13 percent from 15 percent.

A short position is a wager the price of a security will fall, while a long position is a bet it will rise.

Bank Loans

The ECB provided euro-region banks with a record 489 billion euros in its first LTRO on Dec. 21. Using the operations, banks can borrow from the ECB at around 1 percent and invest the proceeds in higher-yielding securities such as the 10-year Italian government bond, yielding 5.35 percent.

Ireland said it will hold a referendum to ratify the European fiscal compact, increasing concern the measure may face resistance.

“Whenever you think the market will go to higher yields, something new comes out of Europe,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors.

Demand for U.S. government debt as a haven from turmoil in European bond markets has kept 10-year yields within about a quarter-percentage point of the record low of 1.67 percent reached Sept. 23.

Treasuries have posted a loss of 0.04 percent this year, compared with a return of 9.8 percent last year, the most since 2008, according to Bank of America Merrill Lynch data.

Fed Operations

The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap long-term borrowing costs under a program it plans to conclude in June. The central bank bought $4.95 billion of U.S. debt due from May 2020 to February 2022 today.

The Fed will conduct tri-party reverse repurchase agreements tomorrow as it continues to test one of the tools for an eventual withdrawal of the central bank’s unprecedented monetary stimulus. The operations, part of a series first announced in 2009, don’t represent any change in monetary policy, the New York Fed said today on its website.

The Conference Board’s index of consumer sentiment increased more than forecast, to 70.8 from a revised 61.5 in January, figures from the New York-based private research group showed today. Economists predicted the gauge would climb to 63, according to the median estimate in a separate survey.

Bookings for goods meant to last at least three years slumped 4 percent, more than forecast, after a revised 3.2 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists projected a 1 percent decline, according to the median forecast in a Bloomberg News survey.

“Along with the weaker economic data and continued uncertainty out of Europe, we have more Fed buybacks and we are seeing a need for month-end buying, which is not leaving investors with any reason to sell,” said Scott Graham, head of government bond trading at Bank of Montreal’s BMO Capital Markets unit in Chicago, a primary dealer.

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