U.S. 10-year yield falls most since November on Italy’s vote

Treasuries rose, pushing 10-year yields down the most since November, as polls indicated the euro area’s third-largest economy, Italy, may be left with a hung parliament, stoking refuge demand.

The benchmark yield reached a one-month low after the U.S. sale of $35 billion in two-year notes, with direct bidders, non- primary dealer investors that place their bids directly with the Treasury, purchasing the highest amount of the securities since October. U.S. debt gained as Italy may require another vote after the four-way race that ended today was poised to result in a divided parliament, spurring concern of renewed turmoil in European markets.

“The move today is all about the Italian elections, which is giving a bid to Treasuries,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “When there is concern about one of the largest economics in Europe with one of the largest debt loads in the region, you will see a flight to quality.”

The benchmark 10-year yield dropped 10 basis points, or 0.10 percentage point, to 1.86 percent at 4:08 p.m. New York time, according to Bloomberg Bond Trader prices. The yield fell the most since Nov. 7 and reached the lowest level since Jan. 25. The 2 percent note maturing in February 2023 added 29/32, or $9.06 per $1,000 face amount, to 101 1/4.

Thirty-year bonds rose more than two points, pushing the yield down 10 basis points to 3.05 percent, the least since Jan. 25.

Trading Levels

“A lot of people had a bearish outlook and a lot of stops have been hit,” said Larry Dyer, a U.S. interest rate strategist with HSBC Holdings Plc in New York, one of 21 primary dealers that trade with the Federal Reserve. “Most investors were looking for rates to increase at the start of the year, and that had them short the market, and now suddenly we’re back in risk off.” Stops are preset orders triggered when prices reach a certain level, while short positions are bets that an asset will decline in value.

The difference between 10-year yields on regular U.S. government securities and Treasury Inflation Protected Securities, known as the 10-year break-even rate, was 2.52 percentage points, the least since Jan. 25. It touched 2.73 percentage points on Sept. 17, the highest since 2006.

The two-year notes drew a yield of 0.257 percent, compared with a forecast of 0.258 percent in a Bloomberg News survey of seven of the Fed’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.33, the least since July 2011 and compared with an average of 3.83 for the past 10 sales.

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