Treasuries fell, with the 10-year note dropping for a third day in the longest losing streak in six weeks, as an easing of Japan’s nuclear crisis sapped demand for the safety of U.S. government debt. The decline pushed the two-year note yield to the highest level in a week after Japan’s Prime Minister Naoto Kan said progress is being made in restoring power to reactors at the earthquake-damaged Fukushima Dai-Ichi nuclear plant. Oil jumped as the U.S., U.K. and France attacked military targets in Libya. “There seems to be no real deterioration in the situation in Japan, so that reduces safe-haven flows a bit and is the main reason that Treasury yields are pushing up,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, Netherlands. “We had a lot of flows towards safe-haven assets last week.” The yield on the 10-year note rose five basis points, or 0.05 percentage point, to 3.32 percent at 7:49 a.m. in New York, according to Bloomberg Bond Trader prices. The price of the 3.625 percent note maturing in February 2021 fell 13/32, or $4.06 per $1,000 face amount, to 102 19/32. Two-year note yields increased five basis points to 0.63 percent, the highest level since March 11. Yields on 30-year bonds gained four basis points to 4.46 percent. Treasuries advanced last week on concern Japan’s worst earthquake on record would hurt the world’s third-biggest economy as Europe struggled to contain its sovereign-debt crisis and unrest in the Middle East and North Africa sent oil prices above $100 barrel. Toyota Production Toyota Motor Corp., which has halted domestic vehicle manufacture, said today it will resume Japanese production of parts for its overseas assembly plants, Etienne Plas, a spokesman for the automaker’s European unit, said by telephone. Strategists including Jim Caron at Morgan Stanley, one of the 20 primary dealers that trade directly with the Federal Reserve, said Japan’s earthquake and unrest in the Middle East and North Africa won’t derail the global economic expansion. “We are starting to reduce exposure to bonds,” analysts including Caron, the New York-based global head of interest-rate strategy at Morgan Stanley, wrote in a report dated March 18. “Despite the unforeseen and tragic events in Japan and the unrest in the Middle East, projections for higher global growth and inflation remain largely intact.” Japan’s Insurers Treasury sales by Japanese insurance companies that need to raise money probably won’t be enough to send yields higher, Morgan Stanley said in its report. Tokyo Electric Power Co. said it had connected the No. 3 and No. 4 nuclear reactors at the stricken Fukushima Dai-Ichi plant to a power source, reducing fears of a meltdown. The container of the No. 3 reactor showed little change in pressure around the time smoke was seen rising from the building today, Kyodo News reported, citing the utility. The worst is probably over in Japan as efforts to stabilize the damaged nuclear plant have had some success, U.S. Energy Secretary Steven Chu said on “Fox News Sunday” yesterday. The yen declined 0.8 percent to 81.20 per dollar after sliding the most in six months on March 18, when G-7 members sold the currency after it reached a post-World War II high, endangering Japan’s recovery. In Libya, attacks have effectively grounded Muammar Qaddafi’s air force, halting his advances into the rebel stronghold of Benghazi, Libya’s second-biggest city, allied officials said. U.S. Housing In the U.S., sales of previously owned homes dropped 4.7 percent in February to a three-month low, according to the median forecast of economists in a Bloomberg News survey before today’s report from the National Association of Realtors. As part of an effort to sustain the U.S. expansion, the Fed is scheduled to purchase $1.5 billion to $2.5 billion of Treasuries maturing from August 2028 to February 2041 today. 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 debt known as the break-even rate, widened to 2.46 percentage points, from 1.85 percentage points six months ago. U.K. bonds are generating the biggest gains in the government debt market. Of the 26 sovereign-debt markets tracked by Bloomberg/EFFAS indexes, none have done better than gilts the past six weeks. They have returned 2.9 percent since Feb. 4, including reinvested interest, beating the 1.9 percent surge in U.S. Treasuries and 0.4 percent advance in German bunds, according to Bank of America Merrill Lynch indexes. Prime Minister David Cameron is braving protests and rising unemployment to push through the biggest spending cuts since World War II and close a deficit that grew to 11.1 percent of gross domestic product in the fiscal year ended March 2010. To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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