Treasuries decline as Greece debt exchange eases refuge demand

March 7 (Bloomberg) -- Treasuries fell as reports showed Greece is garnering enough support for the nation’s debt exchange to avoid a potential default and U.S. companies added more jobs last month.

Government bonds erased a portion of yesterday’s gains as data showed that investors with at least 58 percent of Greece’s debt will participate in the country’s private-sector- involvement debt deal. Yields on benchmark 10-year notes yesterday declined the most this year. The report today from Roseland, New Jersey-based ADP Employer Services comes two days before a U.S. report forecast to show nonfarm payrolls added more than 200,000 jobs in February for a third month.

“We are paring some of the risk-off trade from yesterday with the market clearly focused on PSI and what percentage of the Greek bondholders agree to the swap,” said Michael Pond, co-head of interest-rate strategy in New York at Barclays Plc, one of 21 primary dealers that trade with the Federal Reserve.

Yields on 10-year notes rose three basis points, or 0.03 percentage point, to 1.98 percent at 3:49 p.m. New York time, according to Bloomberg Bond Trader prices. They fell seven basis points yesterday. The yields have traded between 1.79 percent and 2.09 percent in 2012. The 2 percent security due in February 2022 declined 9/32, or $2.81 per $1,000 face amount, to 100 6/32.

Thirty-year Treasury bond yields increased five basis points to 3.12 percent, after dropping eight yesterday.

The Standard & Poor’s 500 Index rose 0.8 percent today after sliding 1.5 percent yesterday, the most since December.

Report on Fed

Treasuries stayed lower and stocks extended gains as the Wall Street Journal reported Fed officials are considering a bond-buying program designed to subdue concern about future inflation if they decide on new steps to boost the economy. The Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie it up by borrowing it back for short periods at low rates, the newspaper said, citing Fed officials.

The U.S. central bank is scheduled to hold a policy meeting on March 13.

Prices of federal funds futures contracts traded at the CME Group in Chicago fell on the possibly of a sterilization of long-term debt purchases via draining short-term cash from the money markets. The June 2012 contract traded at 99.87 basis points, corresponding to a rate of 0.13 percent, compared to 0.12 percent yesterday.

The idea of the Fed sterilizing future debt purchases “certainly put some pressure on the federal fund futures contracts,” said Kenneth Silliman, head of U.S. short-term rates trading at Toronto Dominion Bank’s TD Securities unit in New York.

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