U.S. 10- to 30-Year Yield Gap Shrinks as Inflation Seen in Check

The difference between 10- and 30-year Treasury yields approached the narrowest level in 17 months on speculation inflation will hold in check as the Federal Reserve reduces its efforts to spur economic growth.

The so-called spread was 1 percentage point. The gap was 97 basis points last week, or 0.97 percentage point, which was the least since Jan. 3, 2012, according to data compiled by Bloomberg. The longest maturities are those most influenced by the outlook for prices in the economy. While U.S. government securities have fallen 2.5 percent this year, Treasury Inflation Protected Securities tumbled 8 percent, Bank of America Merrill Lynch indexes show.

“The economy is not growing fast enough to bring on an inflation acceleration,” said Marc Fovinci, the head of fixed income in Portland, Oregon, at Ferguson Wellman Capital Management Inc., which has $3.5 billion in assets. “I certainly wouldn’t be a holder of TIPS.”

Benchmark 10-year yields were little changed today at 2.49 percent as of 10 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.75 percent note due in May 2023 was 93 19/32.

The difference between yields on 10-year notes and same-maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, was 2.04 percentage points. The average over the past decade is 2.22 percentage points.

Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, fell 44 percent yesterday to $250.9 billion, the least since May 7. June’s average was $446.2 billion.

Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index was 101.32 yesterday. It climbed to 110.98 on June 24, the highest since November 2011.

The Fed is buying $85 billion of Treasuries and mortgage-backed securities each month to support the economy by putting downward pressure on borrowing costs. Chairman Ben S. Bernanke said on June 19 that policy makers may begin slowing bond purchases this year.

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