Treasuries fell, extending a two- week loss, as Ireland’s decision to seek a rescue for itself and its banks eased concern the nation’s debt crisis will spread across Europe. Bonds also declined as the government prepared to sell $99 billion of notes this week, starting with an auction of $35 billion of two-year securities today. After Irish bond yields soared in the past month, European authorities pushed Ireland to seek aid to prevent the crisis that began in Greece this year from spreading to other euro-area countries such as Portugal. “It’s good news for the financial markets and bad news for the Treasury market,” said Kazuaki Oh’e, a debt salesman in Tokyo at Canadian Imperial Bank of Commerce, the North American nation’s fifth-largest lender. Benchmark 10-year yields increased two basis points to 2.89 percent as of 2:18 p.m. in Tokyo, according to data compiled by Bloomberg. The 2.625 percent security due in November 2020 declined 5/32, or $1.56 per $1,000 face amount, to 97 22/32. Yields climbed 34 basis points over the previous two weeks. A basis point is 0.01 percentage point. The euro strengthened for a fourth day against the dollar and the yen on speculation the funds will help Ireland restructure its financial industry, curbing a debt crisis that began this year in Greece. The 16-nation currency gained 0.7 percent to $1.3766. MSCI’s Asia Pacific Index of shares advanced for a third session, rising 0.7 percent. Small Sovereign Irish Finance Minister Brian Lenihan said at a press conference in Dublin yesterday the loan will be less than 100 billion euros ($137.6 billion). “A small sovereign like Ireland faced with an outsized problem that we have in our banking sector, cannot on its own address all those problems,” Lenihan said. The two-year notes being sold today yielded 0.54 percent in pre-auction trading, compared with a record low 0.4 percent at the previous offering on Oct. 26. Investors bid for 3.43 times the amount on offer last month, above the average of 3.25 for the past 10 auctions. Indirect bidders, the investor category that includes foreign central banks, bought 40 percent of the notes, versus the 10-sale average of 38.1 percent. Two-year Treasuries have handed investors a 0.3 percent loss this month, versus a 4 percent decline for 30-year bonds, according to Bank of America Merrill Lynch indexes. ‘Extended Period’ Shorter-maturity notes tend to track what the Fed does with its target for overnight loans between banks, while longer-term bonds are more influenced by inflation. The Fed on Nov. 3 repeated its pledge to keep its benchmark rate at a record low for an “extended period.” The central bank also announced plans to pump $600 billion into the economy through June by buying government debt to spur economic growth and inflation. The Fed is scheduled to purchase $7 billion to $9 billion of Treasuries maturing from February 2018 to November 2020 today as part of the program. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities, has widened to 2.14 percentage points from this year’s low of 1.47 percent in August. The five-year average is 2.09 percentage points. Fed Buying Central bank buying will support bonds, analysts at JPMorgan Chase & Co. led by Srini Ramaswamy in New York wrote in a report Nov. 19. Ten-year yields will fall to 2.25 percent by year-end, the report said. “The Fed still has a long way to go with Treasury purchases,” according to JPMorgan, one of the 18 primary dealers that are required to bid at the government’s debt sales. Fund managers in a survey by Ried Thunberg ICAP Inc., a unit of the world’s largest interdealer broker, became less bearish on the outlook for Treasuries through year-end. Ried’s sentiment index rose to 49 for the seven days ended Nov. 19 from 46 the week before. A figure less than 50 indicates investors expect prices to fall. Treasuries yielded less than tax-exempt bonds for the first time since the financial crisis, a relationship that history shows doesn’t last, especially as the Fed kindles inflation expectations. Investors buying AAA municipal general obligation bonds due in two years get a yield equal to 116 percent of similar- maturity Treasuries, Bloomberg Fair Market Value data show. A ratio above 100 percent means those in the 38.3 percent federal tax bracket get higher yields plus tax-sheltered income. Before the credit crisis in 2008, that happened twice in the 20 years for shorter-maturity debt. Surge in Sales The combination of worsening state and local finances and a surge in sales that included $15.5 billion of offerings last week, the most in more than seven years, has pushed tax-exempt bond payouts above Treasuries. “The value pendulum has swung from Treasuries to munis,” said Jonathan Lewis, founding principal of New York-based Samson Capital Advisors LLC, which manages $7.3 billion. “Municipals are a good place to park your money and get a yield advantage that typically wouldn’t be there.” To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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