April 20 (Bloomberg) -- Treasuries dropped for the first time in three days before the finance chiefs from the Group of 20 nations meet in Washington to assess the European sovereign- debt crisis.
The yield on the 10-year note rose for the first time in five weeks as the G-20 pressed European leaders to intensify efforts to quell the turmoil as it spreads to Spain. The Federal Reserve sold $8.63 billion in notes as part of its program known as Operation Twist. The U.S. will auction $99 billion in two-, five- and seven-year debt next week.
“The European situation is the only thing on people’s minds, so that’s dictating the price action,” said Thomas Roth, senior trader in New York at Mitsubishi UFJ Securities USA Inc.
Benchmark 10-year note yields rose two basis points, or 0.02 percentage point, to 1.99% at 11:06 a.m. New York time, according to Bloomberg Bond Trader prices. The 2% note due February 2022 fell 6/32, or $1.88 cents per $1,000 face value, to 100 3/32.
The 10-year yield has stayed within seven basis points of 2% for almost two weeks. The yield has tumbled from 3.41% a year ago. It’s little changed since April 13, after falling for the past four weeks.
The G-20 cited “the situation in Europe” first in a list of drags on the world economy, according to a draft statement obtained by Bloomberg News. As she closed in on her goal of bolstering the International Monetary Fund’s crisis-fighting coffers by more than $400 billion, Managing Director Christine Lagarde said the lender serves as an emergency backstop and that Europe must protect itself, boost economic growth and cut debt.
Valuation measures show Treasuries rose from the most expensive level in six weeks. The term premium, a model created by economists at the Fed, touched negative 0.62%, the least expensive since April 12. It reached negative 0.67% yesterday, the most expensive since March 7. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
Treasuries have fluctuated between gains and losses each day this week and were little changed yesterday amid concern about Europe’s debt crisis.
“The market is a little softer,” said Sean Murphy, a trader in New York at Societe Generale SA, one of the 21 primary dealers that trade with the Fed. “People are indifferent to Treasury levels here and are looking for better pickup. It’s more of a risk-on type of trade.”
Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, dropped yesterday to 72.2 basis points, below this year’s average of 79 basis points. It reached 93.3 basis points on March 20, the highest level this year.
Trading volume was below average yesterday, with about $206 billion of Treasuries changing hands through ICAP Plc, the world’s largest interdealer broker. The average in 2012 is $252 billion. Volume reached $439 billion on March 14, the highest since August.
The U.S. announced it will sell $35 billion of two-year notes on April 24, the same amount of five-year debt the following day and $29 billion of seven-year debt on April 26.
The difference between yields on U.S. five-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, narrowed to 1.88 percentage points yesterday, the least since Feb. 16.
The U.S. sold $16 billion in five-year Treasury Inflation Protected Securities at a record low yield of negative 1.08% yesterday as investors sought insurance against rising prices. TIPS of all maturities have returned 2.2% this year, while conventional Treasuries are little changed, according to Bank of America Merrill Lynch Indexes.
The difference between yields on 10-year notes and same- maturity TIPS was 2.22 percentage points, more than the average over the past decade of 2.14 percentage points.
The U.S. central bank is also replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs.
The Fed sold Treasuries due from February 2014 to May 2014 today as part of the program, according to the New York Fed’s website. The Fed has pledged to keep its benchmark interest rate near zero until at least late 2014 to support growth.
Treasury 10-year yields were less than 2% for a sixth day today on concern the European debt crisis will worsen and after U.S. jobless claims and home sales missed forecasts yesterday, stoking demand for the safest assets.
“What’s really important is the jobs data,” said Viola Stork, a fixed-income analyst at Helaba Landesbank Hessen- Thueringen in Frankfurt. “That’s what the Federal Reserve is looking at. The uncertainty is still there and safe-haven demand for Treasuries reflects this.”
The 10-year yield is consolidating after dropping to 1.94% on April 16, the lowest since March 6, according to data compiled by Bloomberg. The yield may find support at the April 16 low, then at the Feb. 28 low of 1.89%, with resistance at the 100-day moving average of 2.01%, the data show.
Support refers to an area on a yield graph where buy orders may be grouped and resistance relates to potential clusters of sell orders.