By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices gained slightly Wednesday, pushing yields down, as nervous attention on European bond markets kept traders interested in holding U.S. debt as a safe haven.
Yields on 10-year notes 10_YEAR -1.32% , which move inversely to prices, fell 3 basis points to 2.02%. A basis point is one one-hundredth of a percentage point.
Thirty-year bond yields 30_YEAR -0.94% , the most sensitive to inflation expectations, declined 3 basis points to 3.06%.
Yields on 2-year notes 2_YEAR +3.25% were little changed at 0.24%.
“Europe is taking center stage as a driver of interest rates,” said Mike Materasso, co-chair of Franklin Templeton’s fixed-income policy committee. “There's potentially a lot of risks out there.”
The news flow out of Europe, with some attention being paid to U.S. economic data, monetary-policy makers and the looming deadline for Congress’s deficit-cutting supercommittee, have pushed Treasury rates around on a daily basis but not really all that far.
This month, 10-year yields have closed between 1.95% and 2.07%.
“There’s a lot of intraday volatility, while the ranges aren’t all that volatile,” Materasso said.
On Wednesday, Italian and other European government bond yields rose for a second day despite apparent intervention by the European Central Bank. Read about European bonds, euro.
“Euro-zone debt issues remain a slow-moving trainwreck that keeps rolling on, driving the market off the track and causing [it] to twitch and turn, even though new information remains sparse,” said George Goncalves and Ankit Sahni, bond strategists at Nomura Securities, in a note.
U.S. bonds will continue to stay captive to news from the European Union, they said, ”as we wait for a credible resolution (good or bad) from EU policy makers.”
Inflation gauge shows worries falling
Bonds held the line on small gains Wednesday after the U.S. consumer price index unexpectedly declined 0.1% in October. Excluding food and energy, inflation rose 0.1%, in line with forecasts. Read story on CPI
The gap between regular Treasurys and inflation-indexed notes — a measure of investors’ inflation expectations over the life of the debt — extended a decline for the last week. Regular 10-year notes yield 1.96 percentage points more than Treasury Inflation Protected Securities, or TIPS, after the data Wednesday, according to Barclays Capital. That’s down from 2.02 points on Tuesday.
Also, the Treasury Department will sell $11 billion in 10-year TIPS on Thursday. See Treasury’s auction schedule .
“The downside surprise in headline wasn’t much of a miss (and core came in slightly higher than consensus) but with TIPS supply tomorrow and increasing concern over Europe, it was enough to spook TIPS investors,” said Michael Pond, a Treasury strategist at Barclays Capital.
That means all of the yield on regular 10-year notes is ascribed to inflation risk as the Federal Reserve’s purchases of U.S. bonds and worries about sluggish growth have sapped the other typical drivers of yields, said Eric Green, chief market economist at TD Securities.
“The inflation premium accounts for all the pricing in rates out to 10 years, but that has less to do with a concern on inflation and more to do with Fed buying and contagion fears from Europe,” he said. “Those dynamics are not likely to change today or anytime soon.”
Separate reports showed U.S. industrial production expanded and home-builder confidence rose. See story on industrial production. Read about home builder confidence.
Analysts see bonds fluctuating in a fairly tight range, torn by uncertainty about the sovereign-debt crisis in Europe and a recent string of improving economic data out of the U.S. that’s put a floor under equity markets.
On Tuesday, U.S. 10-year yields dipped under 2% as debt yields for several European countries jumped, signalling worries that the debt crisis is spreading. Read about Treasury market on Tuesday, European debt yields.
Data out Wednesday also showed foreign purchases of Treasury debt jumped in September to the highest level since August 2010. Read more on Treasury demand.
