Treasuries advance before European leaders meet on debt crisis

TIPS Auction

The U.S. plans to auction $7 billion of 30-year Treasury Inflation Protected Securities, with the securities poised to draw a record-low yield.

The yield on 30-year TIPS fell three basis points to 0.48 percent. The previous sale of the securities on June 12 attracted an auction rate of 0.52 percent, the least since the government began selling them in 1998.

Investors bid for 2.64 times the amount of debt available in June, up from 2.46 times in February.

Inflation protection isn’t the only reason to buy the bonds. Like all U.S. government debt, the securities are a haven for investors seeking safety, which can explain why they gain even as inflation stays below its 10-year average.

The securities are also an alternative to conventional Treasuries whose yields are approaching record lows.

Price Expectations

The difference between rates on 30-year bonds and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, shrank one basis point to 2.46 percentage points. The 10-year average is 2.47 percentage points. TIPS have returned 6 percent in 2012, versus 1.4 percent for conventional Treasuries, according to Bank of America Merrill Lynch indexes.

The U.S.’s fiscal position has put its debt rating at risk, Scott Mather, head of global portfolio management at Pacific Investment Management Co., which has $1.82 trillion in assets, said in Wellington.

“The U.S. will get downgraded,” Mather said. “It depends on what the end of the year looks like, but it could be fairly soon after that.” Pimco is based in Newport Beach, California, and runs the world’s biggest bond fund.

Bloomberg News

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