Treasuries headed for a weekly increase as traders pared bets the Federal Reserve
will raise interest rates this year amid signs the economic slowdown is deepening. The
gains widened the difference in yields between two- and 10-year Treasury notes,
indicating traders are favoring shorter maturity debt, which is more sensitive to
monetary policy. A retreat by U.S. stock futures and losses in European shares also
stoked demand for the relative safety of government debt. The two-year note yield fell
7 basis points, or 0.07 percentage point, to 2.86 percent at 8:28 a.m. in New York,
according to BGCantor Market Data. The price of the 2.625 percent security due in
May 2010 rose 1/8, or $1.25 per $1,000 face amount, to 99 18/32. The yield declined
17 basis points this week. The yield on the 10-year Treasury fell 7 basis points to 4.14
percent, widening the gap between the two securities to 1.28 percentage points, from
1.22 percentage points last week. The market is up to .25 better in discount this
morning.
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