NEW YORK (MarketWatch) — Treasury prices rose Friday, pushing long-term yields down this quarter by the most since the depths of the credit crisis, as worries about European leaders’ resolve to contain the ongoing debt crisis in the region weighed on equities and the euro, raising the appeal of the relative safe-haven of U.S. government debt.
“Issues from the euro zone continue to linger and keep market participants on edge,” said George Goncalves, bond strategist at Nomura Securities.
Yields on 10-year notes 10_YEAR -4.10% , which move inversely to prices, fell 6 basis points to 1.94%, after falling to 1.89% earlier. A basis point is 1/100th of a percentage point.
Yields on 2-year notes 2_YEAR -8.49% slipped 1 basis point to 0.26%. Two-year yields have risen or stayed flat for nine straight sessions, the longest such string since late March, as the Federal Reserve has promised to sell short-term securities.
Thirty-year bond yields 30_YEAR -4.45% declined 13 basis points to 2.93%, off the day’s low of 2.92%. It’s the biggest one-day drop since just after the Federal Reserve announced a little more than a week ago it would buy more long-term debt than expected.
Treasury prices added to gains after U.S. data showed consumer spending increased 0.2% in August as incomes fell 0.1%. A separate report said consumer prices rose 0.2% last month. Read about income, spending data.
Details of the data “implied a decline in aggregate demand and thus a weaker economic environment in the future,” said analysts at BTIG.
Treasury prices pared their advance and stocks recovered somewhat after a pair of reports showed consumer sentiment and manufacturing in the Chicago area unexpectedly improved this month. Read about consumer sentiment.
How to ‘Twist’
The Federal Reserve gave more details of its planned debt sales and purchases as part of “Operation Twist,” a program recently announced to push longer-term yields down, flattening the yield curve that charts the spread between short- and long-term rates.
Analysts said the announcement contained no surprises because much of the details were already known.
Bond investors also expect “Operation Twist” to support company debt by increasing demand for higher-yielding assets and by keeping it relatively cheap for companies to borrow money. Read about corporate bonds, Operation Twist.
Also, it’s the last day of the month and quarter, which often drive some buying of Treasurys by fund managers who seek to match some characteristics of benchmark indexes by extending their portfolio’s duration, which is partially determined by maturity.
Big quarterly rally
For the quarter, 10-year yields plunged 122 basis points from 3.16%, the biggest decline since the quarter ended in December 2008 at the peak of the credit crisis. They set an all-time low along the way.
Thirty-year bond yields have dropped 146 basis points since June. The long bond’s yield also touched its lowest level since early 2009 this month
Yields on 2-year notes also tumbled to a record low and are down 20 basis points from June. That’s on top of a second-quarter drop from 0.79% at the end of March.
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