US 10-year yields reach two-week low as investors seek refuge

March 29 (Bloomberg) -- Treasuries rose, pushing 10-year yields to a two-week low, as investors sought the safest assets on concern Europe’s debt crisis is poised to flare again.

Bonds stayed higher as a $29 billion auction of seven-year Treasuries drew the highest demand since August from a category of investors that includes foreign central banks. Greece will probably have to restructure its debt again, a Standard & Poor’s official said yesterday. Federal Reserve Chairman Ben S. Bernanke said this week the economic recovery isn’t assured.

“The uncertainty surrounding the situation in Europe has moved back toward the forefront,” said Chris Ahrens, head interest-rate strategist in Stamford, Connecticut, at UBS AG, one of 21 primary dealers that are obligated to bid in U.S. debt auctions. “We’ve seen a little bit of pressure in the risk markets. We’re back to risk-off.”

Benchmark 10-year note yields dropped four basis points, or 0.04percentage point, to 2.16% at 3:16 p.m. in New York, according to Bloomberg Bond Trader prices. They touched 2.15%, the lowest level since March 14. The 2% securities maturing in February 2022 advanced 10/32, or $3.13 per $1,000 face amount, to 98 18/32. The yields increased two basis points yesterday.

The yield on the current seven-year note fell four basis points to 1.54% and reached 1.53%, also the lowest level since March 14.

Stocks slid, with the Standard & Poor’s 500 Index down 0.3% after falling earlier as much as 1%.

Quarterly Loss

Treasuries have lost 1.2% this quarter in the biggest three-month decline in more than a year, according to Bank of America Merrill Lynch indexes, as the U.S. economy showed signs of improvement. They dropped 2.7% from October through December of 2010.

The declines were led by securities maturing in 10 years or more, which are down 5.1% since Dec. 31, the indexes show. The global government bond market has returned 0.4% since then, while the global broad bond market is up 1.1%, the data show.

The 10-year yield will climb to 2.56% by year-end, according to the average forecast in a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings. The yield has averaged 3.86% over the past decade.

Treasuries gained earlier after Moritz Kraemer, head of sovereign ratings at S&P, said another debt restructuring of the outstanding debt of Greece, where the euro region’s debt crisis began in 2009, “may be down the road” and may involve bailout partners such as European governments. Kraemer spoke late yesterday at an event in London.

European Meeting

European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros ($1.3 trillion) to keep the debt crisis at bay, according to a draft statement for finance ministers. Euro-area officials meet tomorrow in Copenhagen to discuss the measure.

“While the situation in the euro region may have improved, it’s far from over, and this concern should continue to underpin demand for haven assets like Treasuries,” said Matteo Regesta, a senior fixed-income strategist at BNP Paribas SA in London.

Bernanke said today the pace of recovery from the recession has been “extremely sluggish,” while action by the world’s central banks helped prevent another Great Depression. He made the comments in slides prepared for a lecture to students at George Washington University.

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