Treasuries snap longest rally since 2008 amid optimism on Spain

Bailout Decision

Rajoy has been stoking frustration among some European leaders for delaying a decision on whether to seek a bailout from the euro region’s rescue fund that would allow the European Central Bank to prop up the nation’s bond market.

The yield on Spain’s 10-year note dropped 12 basis points to 5.95 percent, according to Bloomberg data, after touching a three-week high of 6.11 percent earlier.

Stocks rose as risk appetite increased. The Standard & Poor’s 500 Index gained for the first time in six days, climbing 1.1 percent.

U.S. government securities have lost 0.2 percent this month, paring their gain for the quarter to 0.7 percent, according to Bank of America Merrill Lynch’s Treasury Master index. Treasuries have returned 2.4 percent this year, the index showed, compared with a 22 percent gain by the S&P 500, including reinvested dividends. Treasuries rose 9.8 percent in 2011, versus a 2.1 percent gain by the equities benchmark.

Treasury Auction

At today’s auction of U.S. seven-year notes, indirect bidders, an investor class that includes foreign central banks, purchased 34.9 percent of the notes, the least since the January offering. The average at the past 10 sales was 40.6 percent.

Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 17 percent of the notes, compared with an average of 14.1 percent at the last 10 auctions.

The record auction low yield for the securities, 0.954 percent, was set at the July offering.

“It was a very strong auction in terms of yield,” said Ray Remy, head of fixed income in New York at the primary dealer Daiwa Capital Markets America Inc. “The reason it was strong was because of quarter-end.”

Investors such as banks and mutual funds are often attracted to the safest securities at quarter-end to improve the quality of assets on their balance sheets.

Today’s offering was the final of three note auctions this week totaling $99 billion. The U.S. sold $35 billion of two-year debt on Sept. 25 at a yield of 0.273 percent and the same amount of five-year notes yesterday at a yield of 0.647 percent.

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