U.S. 10-year yield falls to 2-month low on fiscal-cliff concern

Cliff Rally

The fiscal cliff appears to be an issue” behind the rally in Treasuries, said Michael Markovich, head of global interest- rates research at Credit Suisse Group AG in Zurich. “It is also clear Mr. Bernanke will have stronger political support than he would have with a Romney win.”

Romney had said he wouldn’t reappoint Fed Chairman Ben S. Bernanke.

The longest maturities, those most sensitive to inflation, rose the most this week. The difference between five- and 30- year yields shrank to as little as 2.10 percentage points today, the narrowest since Sept. 6.

The spread between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, fell one basis point to 2.45 percentage points. Consumer prices have increased at an average rate of 2.5 percent for the past decade.

Fed Role

As Obama won re-election Nov. 6, Republicans kept control of the U.S. House of Representatives and Democrats held a majority in the Senate, raising concern the two parties will have trouble agreeing on a budget that will keep the nation out of recession.

Obama backs the Fed’s plan to boost the economy through bond purchases. The central bank has bought $2.3 trillion of Treasuries and mortgage-related bonds and instituted plans to purchase $40 billion of home-loan securities a month.

The Fed is also swapping shorter-term Treasuries in its holdings with those due in six to 30 years as part of its efforts to put downward pressure on long-term borrowing costs.

The central bank is scheduled to buy as much as $1.5 billion of Treasury Inflation Protected Securities maturing from January 2019 to February 2042 today as part of the program, according to the Fed Bank of New York’s website.

The 10-year yield will rise to 1.70 percent by the end of the year, according to a Bloomberg survey of banks and securities companies with the most recent projections given the heaviest weightings.

Bloomberg News

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