Treasuries Rise on Demand Linked to Reduced Appetite for Risk

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Treasuries rose, pushing two-year note yields down from the highest in almost a month, as appetite for riskier assets waned.

Longer-term U.S. yields rose earlier on speculation that investors would shift attention to an expected $9 billion corporate bond sale from Intel Corp., before that issue was pushed to later in the week. U.S. debt strengthened as stocks fell for the first time in four days.

“The Treasury market has firmed up as risk assets have come under pressure,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Volumes remain light and the Treasury market is responding to small fluctuations in risk-on, risk-off, rather than any shift in the macro themes.”

Two-year note yields fell three basis points, or 0.03 percentage point, to 0.68 percent as of 4:59 p.m. in New York, according to Bloomberg Bond Trader data. The yield had reached 0.71 percent, the highest level since June 26.

The yield on the benchmark 10-year note fell five basis points to 2.33 percent.

The Standard & Poor’s 500 Index of stocks fell 0.4 percent.

Volume Light

“A slightly weaker stock market is helping the bond market,” said Dan Mulholland, trader in New York at Credit Agricole SA.

The volume of Treasuries traded through ICAP Plc, the largest inter-dealer broker of U.S. government debt, was at $272.6 billion on Tuesday, compared with an average $341 billion this year.

Volatility has fallen to the lowest since April, according to the Bank of America Merrill Lynch option volatility estimate, also known as the MOVE index. The measure was at 72.42 Tuesday, compared with an average of 84.92 this year.

Shorter-term Treasuries have outperformed even as the Federal Reserve signaled it will raise interest rates this year.

Treasuries with maturities of one to three years have gained 0.6 percent this year, according to the Bloomberg U.S. Treasury Bond Index. U.S. debt maturing in 10 years and longer are down 4.1 percent.

Fed Chair Janet Yellen told lawmakers last week that she expects officials to raise borrowing costs from near zero this year and to reduce stimulus gradually. The Fed holds a policy meeting July 28-29.

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