Treasuries drop first time in 3 days amid wagers on Fed, Europe

June 19 (Bloomberg) -- Treasuries fell for the first time in three days as the Federal Reserve opened a meeting amid speculation it may do more to boost the economy and investors bet European leaders will make progress on their debt crisis.

U.S. 30-year bond yields rose from the lowest level in almost two weeks as a European official signaled Greece may get an easing of the economic-performance targets set as a condition for it to receive international aid. Leaders of Group of 20 nations at a summit in Mexico are focusing their response to the financial crisis on stabilizing European banks.

“There is optimism that European policy makers are getting their acts together and optimism the Fed is going to take some further action tomorrow, which is taking some of the safe-haven buying out of the Treasury market,” said Larry Milstein, managing director in New York of government trading at R.W. Pressprich & Co., a broker dealer for institutional investors. “Any selloff in rates will be limited until we get concrete answers.”

The 30-year yield climbed seven basis points, or 0.07 percentage point, to 2.73 percent at 2:40 p.m. New York time, according to Bloomberg Bond Trader data, after touching 2.64 percent earlier, the least since June 6. It reached a record low 2.51 percent on June 1. The price of the 3 percent security maturing in May 2042 tumbled 1 3/8, or $13.75 per $1,000 face amount, to 105 19/32.

The benchmark 10-year note yield increased four basis points to 1.62 percent.

Risk Appetite

Stocks rallied as investor risk appetite swelled. The Standard & Poor’s 500 Index gained 1.2 percent.

Treasuries returned 3.3 percent from the end of March to yesterday, according to Bank of America Merrill Lynch’s Treasury Master index, amid concern Europe’s debt crisis was worsening and U.S. growth was slowing. The S&P 500sdfdfdf lost 4.1 percent, after taking account of reinvested dividends.

A valuation measure showed U.S. 10-year notes remained at almost the most expensive level ever. The term premium, a model created by economists at the Fed, was at negative 0.87 percent, after reaching a record of negative 0.94 percent on June 1 as investors sought refuge from Europe’s sovereign-debt crisis.

A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average over the past decade is 0.50 percent.

Volatility in the Treasuries market dropped yesterday by the most since November 2010, sliding 10.2 percent to 85.7 basis points, according to Bank of America Merrill Lynch’s MOVE index. The gauge measures price swings based on options. The one-year average is 88.2 basis points. Trading volume also shrank, with about $188 billion of Treasuries changing hands yesterday through ICAP Plc, the world’s largest interdealer broker, the least since May 25.

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