Treasuries gain amid concern Cyprus will worsen European crisis

‘Fear Festers’

“The longer Cyprus is not dealt with, the more fear festers in the market about contagion, which continues to support Treasuries,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “People don’t want to be short headed into the weekend. Even if you think it’s not a bad situation, you can’t fight the market right now.” Short positions are bets an asset will fall.

Treasuries trimmed their advance after sales of existing U.S. homes increased 0.8% in February to a 4.98 million annualized rate, the most since November 2009, figures from the National Association of Realtors showed today in Washington. The median forecast of 77 economists surveyed by Bloomberg called for an increase to a 5 million pace.

Labor Department data showed applications for jobless benefits increased by 2,000 to 336,000 in the week ended March 16. Economists projected 340,000 claims, according to the median estimate in a Bloomberg survey. The monthly average dropped to the lowest since February 2008.

U.S. Auctions

The Treasury will announce today it will auction $35 billion of two-year debt on March 26, the same amount of five- year notes the next day and $29 billion of seven-year securities on March 28, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey. The government is scheduled to sell $13 billion of 10-year inflation-linked notes today.

The yield gap between 10-year Treasury Inflation Protected Securities and nominal U.S. notes, which signals traders’ outlook for consumer prices over the life of the debt, narrowed to 2.54% today, down from a closing-basis high this year of 2.59% on March 14. The measure, called the 10-year break-even rate, has averaged 2.36% over the past year.

The Fed will buy as much as $1.75 billion of Treasuries maturing from February 2036 to February 2043 today under its quantitative-easing program aimed at stimulating the economy through lower borrowing costs.

“Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated,” the Federal Open Market Committee said yesterday at the end a two-day meeting in Washington. Recent data suggest “a return to moderate economic growth following a pause late last year.”

Bloomberg News

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