Treasuries Decline as Oil Falls From Highest Level Since 2008, Stocks Gain

Treasuries fell as crude oil dropped from almost its highest level since September 2008 and stocks rose, reducing demand for the safety of U.S. government debt.

The yield difference between 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the securities, touched 2.55 percentage points, the widest in 32 months. Three-year debt slid before the $32 billion auction of the securities, the first of three note and bond sales this week totaling $66 billion.

“What you’ve got here is a great amount of uncertainty as it relates to oil and how things will actually play out in the Middle East,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors.

Benchmark 10-year note yields advanced almost one basis point, or 0.01 percentage point, to 3.53 percent at 11:02 a.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security due in February 2021 slid 2/32, or 63 cents per $1,000 face amount, to 100 25/32.

The yield on the current 3-year note gained two basis points to 1.23 percent. The 30-year bond yield increased one basis point to 4.63 percent.

Crude oil for April delivery on the New York Mercantile Exchange dropped for the first time in three days, falling 0.9 percent to $104.54 a barrel. Kuwait’s oil minister, Sheikh Ahmad al-Abdullah al-Sabah, told reporters in Kuwait City today that OPEC members are discussing whether to hold an emergency meeting on possibly increasing production.

Crude Oil Prices

The price reached $106.95 yesterday, the highest level since Sept. 26, 2008, as Libyan warplanes bombed rebel positions near a crude-producing hub.

An increase in oil prices to $140 a barrel will cause some advanced economies to slide back into recession, according to Nouriel Roubini, the economist who predicted the global financial crisis.

The European Central Bank may be making a mistake by raising interest rates “too soon” when debt-ridden countries on the euro region’s periphery struggle to restore the competitiveness of exports, Roubini told reporters in Dubai.

Greek 10-year bond yields and credit-default swaps surged to a record as borrowing costs increased at a $2.3 billion sale of treasury bills. Greek bond losses extended declines to a ninth day after Greece’s credit rating was cut by Moody’s Investors Service yesterday.

Greek Yields

The yield on 10-year Greek bonds jumped as much as 48 basis points to 12.82 percent, the most since Bloomberg began collecting the data in 1988.

Spain will sell 4 billion euros of 15-year bonds at a yield of 217 basis points more than the benchmark mid-swap rate, according to a banker involved in the transaction. Portugal plans to sell up to 1 billion euros of September 2013 notes tomorrow in its second auction this year.

The three-year notes the U.S. Treasury is selling today yielded 1.273 percent in pre-auction trading, compared with 1.349 percent at the offering of the securities on Feb. 8.

Investors bid for 3.01 times the amount of available debt last month. The average for the past 10 auctions is 3.14.

Indirect bidders, which include foreign central banks, bought 27.6 percent in February, compared with the 10-sale average of 38.9 percent. Direct bidders, non-primary dealers buying for their own accounts, purchased 10.1 percent, the least in a year. The 20 primary dealers are firms that are required to underwrite the U.S. debt.

U.S. Debt Sales

The government also plans to sell $21 billion of 10-year notes tomorrow and $13 billion of 30-year bonds a day later.

Treasuries have handed investors a 0.4 percent loss this year, after a 2.7 percent drop in the fourth quarter of 2010, according to indexes compiled by Bank of America Merrill Lynch. Ten-year yields will rise to 3.93 percent by year-end, a Bloomberg survey of bank and security company estimates shows.

The U.S. jobless rate decreased to 8.9 percent in February from 9 percent in January, the Labor Department said March 4.

The Reuters/University of Michigan preliminary index of consumer confidence for March may show sentiment eased to 76.5 from 77.5 at the end of February, according to the median forecast of 66 economists before the March 11 report.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net