Treasuries advance for fourth day on deepening Europe debt concern

April 23 (Bloomberg) -- Treasuries climbed for a fourth day, pushing the 10-year note yield to the lowest in almost two months, as concern the euro-area debt crisis may slow U.S. economic growth stoked demand for safety.

The yield on the 30-year bond dropped to the lowest in almost seven weeks before the Federal Open Market Committee begins a two-day meeting tomorrow to set monetary policy. Treasuries were supported as a first round of French elections ended with President Nicolas Sarkozy trailing his Socialist rival and the Dutch government offered to quit. The U.S. will sell $99 billion of debt starting tomorrow.

“Europe is still driving U.S. rates,” said Chris Ahrens, head interest-rate strategist in Stamford, Connecticut, at UBS AG, one of 21 primary dealers that trade Treasuries with the Federal Reserve. “There’s a concern regarding how these events will play out given the austerity fatigue percolating among the populous. People are buying the risk-free asset.”

Benchmark 10-year yields fell four basis points, or 0.04 percentage point, to 1.93% at 12:56 p.m. New York time, according to Bloomberg Bond Trader prices. The yield reached 1.91%, the least since Feb. 28. The 2% note due February 2022 rose 9/32, or $2.81 per $1,000 face amount, to 100 20/32. The record low yield was 1.67% set Sept. 23. Ten-year yields have fallen for five weeks.

The 30-year bond yield fell four basis points to 3.08%, the lowest since March 6.

Fed Meets

Treasuries also rose amid speculation Fed Chairman Ben S. Bernanke will say this week that more needs to be done to help the U.S. economy.

The Fed’s policy-setting committee will issue a statement and Bernanke is scheduled to give a press conference on April 25. He said last month that unemployment is too high.

“Their economic assessment is going to be important,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. “The U.S. economy has softened a little. We’re also getting close to the end of Operation Twist, so there may be verbiage steering the market in some type of direction.”

The Fed is replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs in a program known as Operation Twist. It bought $1.832 billion of Treasuries due from February 2036 to February 2042 today as part of the program, according to the New York Fed’s website.

FOMC Watch

U.S. central bankers bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, known as QE1 and QE2. They’ve also said they will probably keep their target for overnight lending between banks at almost zero at least until late 2014 to boost the economy.

U.S. jobs growth slowed to 120,000 in March from 240,000 in February, the Labor Department reported April 6, fueling the debate over whether the Fed needs to start a new program of debt purchases to spur growth.

GDP probably expanded at a 2.5% annual rate, according to the median forecast of 81 economists surveyed by Bloomberg News before the Commerce Department report. It advanced at a 3% pace in the previous three-month period.

“It will be ‘steady as she goes’ with the FOMC,” Ahrens of UBS said. “We’re not expecting for them to announce they are engaging in another round of QE, or an extension of Operation Twist.”

The Fed will make almost no change to the FOMC statement it releases on April 25, while revising down its unemployment projection and moving up growth and inflation forecasts, JPMorgan Chase & Co. economist Michael Feroli wrote in an April 20 client note. The statement won’t mention more QE, wrote Feroli, and will repeat guidance for keeping its benchmark interest rate in a range of zero to 0.25% through late-2014.

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