Treasuries gain a second day amid impasse over U.S. debt ceiling

Treasuries advanced for a sixth time in seven days as investors sought the safest assets on speculation a disagreement among U.S. political leaders over the nation’s debt ceiling will derail the economy.

U.S. government debt extended last week’s advance as a Bloomberg News report that Japan may consider a fund to buy as much as 50 trillion yen ($558 billion) of foreign securities drove the yen to the weakest level versus the dollar in 2 1/2 years. Benchmark 10-year yields dropped to the lowest in a week as Senate Democratic leaders urged President Barack Obama to take any steps he can to pay U.S. financial obligations if Republicans don’t support a debt-limit increase that Democrats deem acceptable. The U.S. reached the debt ceiling on Dec. 31.

“The debt-ceiling agreement will also weigh down economic growth,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We could continue to move higher from here. It’s the weakness in the yen -- it’s the idea that they will be buying Treasury assets, supporting the Treasury market. It’s sustainable.”

The benchmark 10-year yield dropped three basis points, or 0.03 percentage point, to 1.84 percent at 9:21 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 rose 7/32, or $2.19 per $1,000 face amount, to 98 1/32. The yield touched 1.83 percent, the lowest level since Jan. 3.

“The next stop could be 1.75 percent,” said Milstein.

Platinum Coin

Without an extension to the spending limit, the Treasury will exhaust measures to finance the government as early as mid- February, according to the Congressional Budget Office.

Obama “must be willing to take any lawful steps to ensure that America does not break its promises and trigger a global economic crisis -- without congressional approval, if necessary,” Senate Majority Leader Harry Reid and three other top Democrats wrote in a letter to the president on Jan. 11.

Amid Republican opposition to raising the debt ceiling without spending cuts, some Democrats have proposed invoking the Constitution’s 14th amendment and minting a platinum coin with a face value of $1 trillion with which the government can pay its bills.

The Federal Reserve plans to buy as much as $1.75 billion of Treasuries maturing from February 2036 to November 2042, according to the website of the Fed Bank of New York, as part of the $85 billion of government and mortgage debt it is buying each month to spur the economy by putting downward pressure on interest rates.

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