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Treasury 10-Year Yield Drops for 5th Week on Europe, Data

Treasury 10-year note yields fell for a fifth week, the longest stretch since June, as concern Europe’s debt crisis isn’t resolved and weaker-than-forecast U.S. economic data spurred demand for the safest assets.

The benchmark security yielded below 2 percent for sixth consecutive days as finance chiefs from the Group of 20 nations meeting in Washington reported the commitment of $430 billion in fresh money yesterday to stem European turmoil. U.S. filings for jobless benefits rose and sales of previously owned homes dropped earlier in the week, renewing concern the economic recovery is slowing before Federal Reserve policy makers meet April 24-25 to set monetary policy.

“The market has been able to kick the can down the road again regarding Europe, but concerns are brewing about the domestic economic picture in the U.S,” said Larry Milstein, managing director in New York of government- and agency-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “That has kept a bid in Treasuries.”

The 10-year yield fell on the week two basis points, or 0.2 percentage point, to 1.96 percent, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 rose 6/32, or $1.88 per $1,000 face value, to 100 12/32. The yield has stayed between 1.94 percent to 2.07 percent since April 7.

The U.S. 10-year note has stayed within seven basis points of 2 percent for almost two weeks in the longest stretch below the level since February.

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 April 19 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. is scheduled to 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.

“It’s the demand for the safest assets,” said Eric Van Nostrand, an interest-rate strategist in New York at Credit Suisse Group AG, one of 21 primary dealers required to trade Treasuries with the Fed. “The universe of safe assets that the market perceives as nearly risk-free is dwindling.”

Governments nearly doubled the International Monetary Fund’s firepower yesterday to aid Europe in quelling its two-year crisis. The move failed to placate investors as Spanish bond yields rose, extending the longest run of weekly declines in five years.

‘Nervousness’ in Market

Spain auctioned 2.54 billion euros ($3.36 billion) of two-and 10-year debt on April 19, compared with a maximum target of 2.5 billion euros. The nation sold its 10-year benchmark bonds at an average yield of 5.74 percent, compared with 5.40 percent when it last sold them in January.

“Europe is scaring a lot of people again,” said Charles Comiskey, head of Treasury trading at primary dealer Bank of Nova Scotia in New York. “Things seem to be deteriorating and that brings nervousness into the U.S. Treasury market.”

Valuation measures yesterday show Treasuries are near the most expensive level in six weeks. The term premium, a model created by economists at the Fed, touched negative 0.62 percent on an intraday basis. It reached negative 0.67 on April 19, 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 71.4 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.

‘Downside Risks’

Trading volume was below averaged this week, 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.

There is not much “conviction or commitment” in the market, said Michael Franzese, managing director and head of Treasury trading in New York at Wunderlich Securities Inc.

Yields dropped as the FOMC prepares for its third meeting this year. The Fed raised the assessment of the economy and refrained from new actions to lower borrowing costs in a statement at the conclusion of its meeting on March 13. It said “strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook.”

Jobs, Housing

Jobless claims rose last week to 386,000, a Labor Department report showed April 19. The median forecast of 47 economists in a Bloomberg News survey was for a drop in jobless claims to 370,000 in the week ending April 14 from a revised 388,000 the previous week.

Sales of previously owned U.S. homes in March unexpectedly fell for the third time in the last four months, with purchases dropping 2.6 percent to a 4.48 million annual rate from 4.6 million in February, the National Association of Realtors reported the same day in Washington. The median forecast of economists in a Bloomberg News survey called for an increase to 4.61 million. In January, sales at a 4.63 million rate were the strongest since May 2010.

Home starts slowed to a five-month low in March, the Commerce Department said April 17.

“Fixed-income investors are not ignoring the fact that, over the last three weeks, economic data has been worsening,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York.

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