Treasuries snap longest rally since 2008 amid optimism on Spain

Treasuries fell for the first time in nine days, snapping their longest rally in almost four years, as optimism Spain is moving closer to meeting budget-deficit targets reduced the refuge appeal of U.S. government debt.

Demand for the safest assets at quarter-end helped support the Treasury’s auction of $29 billion of seven-year notes even with investors less risk-averse. The notes were sold at a yield of 1.055 percent, versus a forecast of 1.064 percent in a Bloomberg News survey of six of the Federal Reserve’s 21 primary dealers that bid on the sale. The issue’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.61, the lowest in 11 months and below the 2.82 average for the past 10 auctions.

“We’re seeing a bit of a respite here,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. Spain is “taking the necessary measures. It’s a positive step,” he said.

The yield on the current seven-year note rose two basis points, or 0.02 percentage point, to 1.03 percent at 3:04 p.m. in New York trading, according to Bloomberg Bond Trader Prices.

Benchmark 10-year note yields increased three basis points to 1.64 percent. The price of the 1.625 percent security maturing in August 2022 dropped 1/4, or $2.50 per $1,000 face amount, to 99 7/8. Thirty-year bond yields added four basis points to 2.82 percent.

European Crisis

Treasuries gained for an eighth day yesterday, the longest stretch since December 2008, as investors seeking a refuge from Europe’s sovereign-debt crisis bolstered demand for the safest securities. Demonstrators in Spain and Greece protesting budget cuts clashed with police this week.

“It’s just a little bit of unwinding of the fears yesterday,” said Ira Jersey, an interest-rate strategist in New York at the primary dealer Credit Suisse Group AG. “The worry was that there wouldn’t be a bailout for Spain and the unrest would force the government to not make austerity.”

Treasuries extended their drop after Spanish Prime Minister Mariano Rajoy’s nine-month-old government announced its fifth austerity package in what may be a move to head off tougher conditions demanded as part of a potential European bailout. Rajoy’s Cabinet approved a new tax on lottery winnings and a cut in ministries’ spending to shrink the euro area’s third-biggest budget deficit.

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