By Matthew Brown and Wes Goodman March 22 (Bloomberg) -- Treasury 10-year notes snapped a two-day drop amid concern central banks in emerging markets will step up efforts to damp inflation, slowing the global economic recovery and stoking demand for the safety of fixed income. Treasury two-year note yields fell from the highest in 10 weeks after the Reserve Bank of India unexpectedly raised interest rates on March 19. China’s Commerce Minister Chen Deming cautioned the U.S. against imposing sanctions over the value of the yuan, saying that the issue has been politicized. The MSCI World Index of shares fell 0.2 percent. “The India rate hike and underlying concern over China’s currency policy are still on the radar and that’s keeping Treasuries a bit firmer today,” said Sean Maloney, a fixed- income strategist at Nomura International Plc in London. U.S. 10-year yields fell 1 basis point to 3.68 percent as of 8:26 a.m. in London. The 3.625 percent security due February 2020 rose 3/32, or 94 cents per $1,000 face amount, to 99 18/32. Two-year yields fell 1 basis point to 0.98 percent. The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, saying containing inflation has become “imperative.” India’s central bank will probably raise interest rates again next month as the first increase in two years is only the initial step in the battle against price increases, BNP Paribas SA and Standard Chartered Plc said. ‘No Good’ Pressure on China to strengthen the yuan does “no good to anyone,” Deming said at the China Development Forum in Beijing yesterday. China’s trade balance likely slipped into the red in March, although the yuan was stable, showing that exchange-rate changes have “limited” impact on trade, Chen said. Treasuries also snapped losses as U.S. lawmakers passed the most sweeping health-care legislation in four decades, which the Congressional Budget Office estimates will cost $940 billion over 10 years. The amount will be more than made up for with a tax on the highest earners, fees on health-care companies and hundreds of billions of dollars in Medicare savings, which will reduce the federal budget deficit, the CBO said. The Treasury is scheduled to sell $44 billion of two-year notes tomorrow, $42 billion of five-year debt on March 24 and $32 billion of seven-year securities on March 25. The amounts all match records. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

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