Treasuries rose after a nuclear warning and earthquakes in Japan sent stocks lower, boosting demand for the safety of U.S. government debt. Yields on 10-year notes dropped the most this month as Japan lifted the severity rating at the nuclear-power plant that was crippled in the record March 11 temblor and tsunami to the level matching the 1986 Chernobyl disaster and as aftershocks rocked the country. The yields slid even as the U.S. government prepared to auction $32 billion of three-year notes. “We’ve seen equities down on bad news in Japan, and that’s led to a flight to quality into U.S. government bonds,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Upside for Treasuries will be limited ahead of a very heavy supply schedule this week, starting with an auction today.” Benchmark 10-year yields fell four basis points, or 0.04 percentage point, to 3.54 percent at 7:33 a.m. in New York, according to Bloomberg Bond Trader prices. The 3.625 percent note maturing in February 2021 advanced 3/8, or $3.75 per $1,000 face amount, to 100 22/32. The yields dropped as much as five basis points, the most on an intraday basis since March 30. The yields on three-year notes decreased three basis points to 1.29 percent before the auction of the debt, the first of three note or bond sales this week totaling $66 billion. Drop in Stocks The Stoxx Europe 600 Index fell 1.1 percent, while the MSCI Asia Pacific Index of shares dropped 1.5 percent. German government debt rose, pushing the yield on the benchmark 10-year bund down two basis points to 3.47 percent. “There’s a flight to quality supporting government bonds,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas, whose U.S. unit is one of the 20 primary dealers that trade directly with the Federal Reserve. Japan’s Nuclear and Industrial Safety Agency raised the rating of the accident at the Fukushima Dai-Ichi plant to 7, the highest level. Increased radiation prompted the government to widen the evacuation zone. The accident was previously rated 5 on the global scale, the same as the 1979 partial reactor meltdown at Three Mile Island in Pennsylvania. Five-year Treasury yields fell five basis points to 2.27 percent, while two-year note yields declined two basis points to 0.81 percent. Japan’s record temblor and the ensuing tsunami last month led the International Monetary Fund to lower the nation’s economic outlook yesterday, while higher commodity prices spurred a cut in its U.S. growth forecast. Three-Year Auction The three-year U.S. notes scheduled for sale today yielded 1.345 percent in pre-auction trading, compared with 1.298 percent at the previous auction of the securities March 8. Investors bid for 3.22 times the amount of available debt last month. The average for the past 10 auctions is 3.14. The U.S. will follow today’s auction with sales of $21 billion of 10-year notes tomorrow and $13 billion of 30-year bonds on April 14. “The sizes of the auctions are not excessively large,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “This doesn’t look like a huge chunk for the market to digest.” The difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities increased yesterday to 2.67 percentage points, the most in three years before a report this week forecast by economists to show consumer price gains are accelerating. The spread, a gauge of trader expectations for inflation over the life of the debt, was 2.63 today. U.S. Inflation Consumer prices gained 2.6 percent in March from a year earlier, after increasing at a 2.1 percent pace in February, according to the median forecast of 40 economists in a Bloomberg News survey before the Labor Department’s report on April 15. Core prices, which exclude food and fuel, may have climbed at an annual pace of 1.2 percent, compared with 1.1 percent in the previous month. The New York Fed will release its monthly schedule for its Treasury purchases including those for its program to purchase $600 billion of the securities through June to support the economy. The announcement is scheduled for 2 p.m. New York time. The Fed policy makers William Dudley and Janet Yellen said yesterday the U.S. economy isn’t strong enough to ease stimulus. Treasuries have handed investors a loss of 0.6 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. That compares with a decline of 3.1 percent for German bonds and a 1.5 percent loss for U.K. government debt. To contact the reporters on this story: Emma Charlton in London at echarlton1@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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