US 10-year note yield falls below 2% on Europe’s debt crisis

April 10 (Bloomberg) -- Treasury 10-year yields fell below 2% for the first time in almost a one month on speculation the European sovereign-debt crisis is worsening as yields on Spanish and Italian bonds rose.

U.S. debt securities declined earlier on speculation yields that slid to a four-week low will curb demand as investors prepared to bid for $66 billion of notes and bonds at three auctions starting today. The yield on Spain’s 10-year note rose to 5.9%, the highest since November. The yield on Italy’s 10-year note reached 5.58%, the highest since February.

“Spain is raising the prospect of an additional flight-to- safety rally,” said Gary Pollack, head of fixed-income trading at Deutsche Bank AG’s private wealth management unit in New York, which manages $12 billion in bonds.

Yields on 10-year notes fell six basis points, or 0.06 percentage point, to 1.98% at 12:36 p.m. New York time, according to Bloomberg Bond Trader prices. The 2% securities maturing in February 2022 rose 18/32, or $5.63 per $1,000 face amount, to 100 1/8. The yield touched the least since March 8.

The U.S. will sell $32 billion of three-year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds on April 12. The auctions will raise $23.1 billion of new cash as maturing securities held by the public total $42.9 billion.

The three-year note to be sold today yielded 0.43% in pre-auction trading.

Trading Pace

Trading volume was below average yesterday, with about $166 billion of Treasuries changing hands through ICAP Plc, the world’s largest interdealer broker, the lowest for a full-day since March 26. Volume reached $439 billion on March 14, the highest since August. The average in 2012 is $251 billion.

An index of U.S. financial conditions is signaling a slowdown after having crossed over toward indicating growth on March 9.

The Bloomberg U.S. Financial Conditions Index has held below zero since April 6, after the Labor Department said the economy added 120,000 jobs in March, less-than-forecast. The measure fell to minus 0.19 after rising as high as 0.24 on March 19. The index touched minus 12.7 during the financial crisis in October 2008.

U.S. Treasuries investors cut expectations that prices of the securities will drop as the percentage of so-called short positions declined in a weekly survey by JPMorgan Chase & Co.

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