Treasuries rose, with the 10-year note snapping three days of declines, as falling equity markets spurred demand for the perceived safety of U.S. fixed income. The gains pushed the yield on the securities down from near the highest this month, and five- and 30-year debt also climbed for the first time in four days. The MSCI World Index fell 0.3 percent, after a 5.3 percent gain last week. Treasury yields have risen this month as the government prepares to sell $35 billion of three-year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds in two days. “Treasuries picked up a little as equity markets headed lower,” said Peter Chatwell, an interest-rates strategist at Credit Agricole Corporate & Investment Bank in London. “Tomorrow’s auction may make it difficult for the 10-year yield to fall significantly below 3 percent.” The 10-year note yield dropped four basis points to 3.02 percent as of 11:13 a.m. in London, according to BGCantor Market Data. The 3.5 percent security due May 2020 rose 10/32, or $3.13 per $1,000 face amount, to 104 2/32. The yield climbed to 3.06 percent on July 9, the highest level since June 28. The 30-year yield slid three basis points to 4.01 percent, and the two-year note yield declined almost one basis point to 0.63 percent. The 10-year yield fell to 2.88 percent on July 1, a level not seen since April 2009, as stocks fell around the world on concern European efforts to cut government spending would slow global economic growth. Japanese Bonds Japanese government bonds rose, ending two days of declines, as the ruling party’s defeat in upper-house elections fueled speculation the government will seek to increase pressure on the central bank to combat deflation. Benchmark yields fell on expectations the central bank may boost purchases of government debt at a future meeting. The Bank of Japan will keep its benchmark interest rate near zero at a gathering this week, according to all 19 economists in a Bloomberg News survey. The yield on the 10-year bond fell four basis points to 1.125 percent. Treasury yields rose at the end of last week as investors gained confidence in the global economy’s ability to overcome Europe’s debt crisis, curbing demand for the relative safety of U.S. securities. Record bond yields in Europe are proving too good to miss for Michiel de Bruin at F&C Asset Management as predictions of imminent sovereign defaults subside. ‘Buying Across Market’ “We are still buying across the market,” said de Bruin, who oversees $32 billion of European government debt at F&C in Amsterdam. “In our central scenario, we expect that the nervousness around European sovereign bonds will dissipate.” Investments in so-called peripheral nations are paying off as bonds of Portugal rallied 7.2 percent, Ireland gained 4.8 percent and Italy 2.2 percent since May 7, just before the European Union announced its 750 billion-euro ($942 billion) bailout fund for the region’s debt-laden governments. Even Greece’s securities climbed 13.4 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. F&C, London’s Baring Asset Management and UBI Pramerica SGR SpA in Milan are betting that accelerated budget cuts will reduce deficits as Europe’s economy improves. Inflation Outlook Bond bulls say slowing inflation will keep Treasury yields from rising. The consumer-price index fell 0.1 percent in June, a third monthly decline, according to a Bloomberg survey before the Labor Department’s July 16 report. Excluding food and energy, core consumer prices rose 0.9 percent from a year earlier, matching the smallest annual gain since 1966, a separate Bloomberg survey showed. “We are quite bullish because of low inflation,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA. Ten-year yields will fall to 2.9 percent by the end of September, according to BNP, whose U.S. branch is one of the 18 primary dealers required to bid at the government debt sales. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, narrowed to 1.79 percentage points from this year’s high of 2.49 percentage points set in January. Less Bearish Investors became less bearish on U.S. debt in a weekly survey by Ried Thunberg ICAP, a unit of ICAP Plc, the world’s largest inter-dealer broker. The company’s index on the outlook for Treasuries through December rose to 43 for the seven days ended July 9, from this year’s low of 40 a week earlier. A figure less than 50 shows investors expect prices to fall. The company, based in Jersey City, New Jersey, said it surveyed 22 fund managers overseeing $1.39 trillion. The U.S. three-year notes scheduled for sale today yielded 1.05 percent in pre-auction trading, which would be a record low, according to data compiled by Bloomberg. The auction yield of 1.2 percent in January 2009 was the least since the U.S. government began regular sales of the securities in 1981. Investors bid for 3.23 times the amount on offer at last month’s three-year sale on June 8, versus a 10- auction average of 3.06. Indirect bidders, a group that includes foreign central banks, bought 46.7 percent of the debt, versus the 10-sale average of 52.3 percent. President Barack Obama has increased the U.S. marketable debt to a record $7.96 trillion as he tries to sustain the economic expansion. The U.S. economy will grow 3.3 percent this year and 2.9 percent in 2011, the International Monetary Fund said on July 7. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

Source