Treasuries 10-Year Yield Falls for Fifth Week on Europe

Treasury 10-year yields fell for the fifth straight week, the longest stretch since June, amid speculation the European sovereign-debt crisis is far from resolved.

The yield on the 10-year note traded below 2 percent for a sixth day even as governments committed more than $430 billion in fresh money to the International Monetary Fund to help it protect the world economy against turmoil in Europe. The Federal Reserve sold $8.63 billion in notes as part of its program known as Operation Twist.

“The Treasury market is going to stay well bid despite whatever positive spin that comes from European meetings, because the problem in Europe is still not fixed,” Adrian Miller, a fixed-income strategist at GMP Securities LLC in New York, said in a telephone interview. “There is still a lot of uncertainty.”

Benchmark 10-year note yields were little changed at 1.96 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 rose 1/32, or 31 cents per $1,000 face value, to 100 10/32.

The 10-year yield has stayed within seven basis points, or 0.07 percentage point, of 2 percent for almost two weeks. The yield has tumbled from 3.41 percent a year ago.

The near-doubling of the IMF’s firepower was announced after G-20 finance ministers and central bankers met today in Washington. The promise of a larger financial backstop represented an endorsement of Europe’s stepped-up efforts to quell its two-year crisis even as its policy makers were told they should still do more.

‘Key Issue’

“Make no mistake about it, this is a key issue for the global economy,” Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients. “Investors don’t really want to go out and assume new risk.”

Valuation measures show Treasuries rose from the most expensive level in six weeks. The term premium, a model created by economists at the Fed, touched negative 0.62 percent, the least expensive since April 12. It reached negative 0.67 percent yesterday, the most expensive since March 7. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, dropped yesterday to 72.2 basis points, below this year’s average of 79 basis points. It reached 93.3 basis points on March 20, the highest level this year.

‘Price Action’

Trading volume was below average today, with about $130 billion of Treasuries changing hands through ICAP Plc, the world’s largest interdealer broker. The average in 2012 is $251 billion. Volume reached $439 billion on March 14, the highest since August.

“The European situation is the only thing on people’s minds, so that’s dictating the price action,” said Thomas Roth, senior trader in New York at Mitsubishi UFJ Securities USA Inc.

The U.S. announced it will sell $35 billion of two-year notes on April 24, the same amount of five-year debt the following day and $29 billion of seven-year debt on April 26.

The difference between yields on U.S. five-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, narrowed to 1.88 percentage points yesterday, the least since Feb. 16.

TIPS Auction

The U.S. sold $16 billion in five-year Treasury Inflation Protected Securities at a record low yield of negative 1.08 percent yesterday as investors sought insurance against rising prices. TIPS of all maturities have returned 2.2 percent this year, while conventional Treasuries are little changed, according to Bank of America Merrill Lynch Indexes.

The U.S. central bank is also replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs.

The Fed sold Treasuries due from February 2014 to May 2014 today as part of the program, according to the New York Fed’s website. The Fed has pledged to keep its benchmark interest rate near zero until at least late 2014 to support growth.

The 10-year yield is consolidating after dropping to 1.94 percent on April 16, the lowest since March 6, according to data compiled by Bloomberg. The yield may find support at the April 16 low, then at the Feb. 28 low of 1.89 percent, with resistance at the 100-day moving average of 2.01 percent, the data show.

Support refers to an area on a yield graph where buy orders may be grouped and resistance relates to potential clusters of sell orders.

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