Treasuries rise 8th day, longest gain since 2008 on safety bid

Treasury 10-year notes rose for an eighth day, the longest run of gains since December 2008, as investors sought safety with Spanish debt yields climbing toward levels that prompted other European nations to seek bailouts.

Yields on the benchmark securities dropped to a two-week low as gauges of inflation expectations receded from the highs reached after the Federal Reserve announced a third round of debt purchases, or quantitative easing. Investor demand for a haven pushed the yields on the $35 billion in U.S. five-year notes slated to be sold today close to record auction lows.

“Europe is providing minor fundamental strength for U.S. Treasury valuations,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “The sell-off in mid-September was an overreaction to QE3. This is an overreaction to the overreaction.”

The 10-year yield dropped three basis points, or 0.03 percentage point, to 1.63 percent at 9:45 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 rose 10/32, or $3.13 per $1,000 face amount, to 99 30/32. The yield was at the lowest since Sept. 7. It rose to 1.89 percent on Sept. 14, the highest since May.

An eight-day gain in prices is the longest since the period ended Dec. 4, 2008.

Spanish 10-year bonds slumped, with yields rising the most this month, after Catalan President Artur Mas called early elections yesterday. His bid for greater autonomy came a week after President Mariano Rajoy rejected his demand for increased control of the region’s revenue.

Spain, Italy

The drop in Spain’s 10-year bond sent the yield up as much as 30 basis points to 6.04 percent. It reached a five-month low 5.6 percent on Sept. 10. Italy’s 10-year yield rose seven basis points to 5.17 percent, moving higher for the fifth straight day. The yield on Portugal’s 10-year debt climbed 13 basis points to 8.87 percent, the highest since it closed on Sept. 5 at 9.1 percent.

German and British government securities rose as investors sought safety. The yield on 10-year German bunds dropped 10 basis points to 1.49 percent, and 10-year U.K. gilt yields decreased 10 basis points to 1.72 percent.

U.S. government securities were the most expensive in three weeks. The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.95 percent, the most costly since Sept. 3. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average this year is negative 0.74 percent.

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