30-year U.S. Treasury bonds rise as ECB says yield cap not discussed

Aug. 20 (Bloomberg) -- 30-year U.S. Treasury bonds gained after the European Central Bank said it hasn’t discussed any plan to target bond yields of euro-bloc members, reinforcing concern leaders will fail to curb the region’s debt crisis.

Long bonds fell earlier, pushing yields to almost the highest since May, after Germany’s "Der Spiegel" magazine reported the ECB is considering putting a cap on euro-area bond yields to contain the region’s financial turmoil, damping safety demand. The Federal Reserve bought $4.47 billion of Treasuries today as part of a program to support the economy.

“There are still uncertainties out there,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Fed. “There’s been no distinctive action” on the crisis.

Thirty-year bond yields decreased two basis points, or 0.02 percentage point, to 2.91 percent at 11:29 a.m. in New York, according to Bloomberg Bond Trader prices. They climbed earlier to 2.981 percent, after touching 2.984 percent on Aug. 16, the highest since May 14. The price of the 2.75 percent security maturing in August 2042 rose 11/32, or $3.44 per $1,000 face amount, to 96 3/4.

Treasury 10-year note yields declined one basis point to 1.80 percent after increasing earlier to 1.86 percent.

Investors in Treasuries lost 1.5 percent in August, according to Bank of America Merrill Lynch indexes. The last time they fell as much in a month was December 2010.

Less Expensive

The term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.74 percent today, the most expensive in almost a week. The average this year of negative 0.72 percent. The premium was negative 1.02 percent on July 24, the most expensive ever. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

The ECB may decide at its next meeting to set yield limits on the debt of European countries, Der Spiegel reported yesterday, without saying where it got the information. A plan to set a target on bond yields would involve the bank using its power to print money, the German news magazine said.

Treasuries erased losses after the bank said the matter hasn’t been discussed by policy makers.

“The ECB is saying it’s not a done deal that they are going to cap yields,” said Jeffry Feigenwinter, head of Treasury trading in New York at the primary dealer Societe Generale SA.

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