Treasuries rise first time this weak amid Europe crisis concern

Treasuries rose for the first time in five days amid speculation failure of European leaders meeting in Brussels to provide clarity on aid for Spain will prolong the region’s debt crisis, stoking refuge demand.

The yield on the 10-year note dropped from the highest level in a month as Spanish Prime Minister Mariano Rajoy said his nation doesn’t feel any pressure to ask for a bailout and German Chancellor Angela Merkel questioned whether the goal of creating a euro-area bank supervisor by the end of 2012 was realistic. A U.S. industry report is forecast to show sales of existing homes fell in September, highlighting an uneven rebound in the U.S. housing market.

“It’s a long road of uncertainty and it’s been going on for so long,” Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of the 21 primary dealers that trade with the Federal Reserve, said of the European turmoil. “The market is finding its bottom and it’s becoming a range trade again; 1.82 percent has pretty good support. There’s no change in terms of the big picture.”

The benchmark 10-year yield declined two basis points, or 0.02 percentage point, to 1.81 percent at 9:27 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note maturing in August 2022 climbed 6/32, or $1.88 per $1,000 face amount, 98 10/32.

The yield rose to 1.83 percent yesterday, the highest level in a month. The rate rose through its 200-day moving average on Oct. 17, and it has held above the key level since then, based on closing prices.

Term Premium

Treasuries rebounded from the least expensive in almost two months. The 10-year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation, was negative 0.77 percent today, after closing at negative .76 percent yesterday, the least costly level since Aug. 21. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average for the past 10 years is 0.44 percent. The all-time low was negative 1.02 percent on July 24.

A measure of stress in U.S. credit markets, which falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities, rebounded from a record low level on an intraday basis reached earlier this week.

The U.S. two-year interest-rate swap spread, the difference between the two-year swap rate and the comparable-maturity Treasury yield, widened to 10.5 basis points today after narrowing to 8 basis points on Oct. 17 in New York, according to data compiled by Bloomberg. That was the least on an intra-day basis since Bloomberg started keeping data in November 1988. It is down from a 2012 high of 49.25 basis points on Jan. 3.

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