U.S. Treasuries fell, extending the biggest quarterly decline since 2004, as inflation in
the euro region rose to the highest in 16 years and oil advanced above $143 a barrel.
The retreat pushed 10-year yields up from a three-week low after a European Union
report showed the rate of euro-region inflation climbed to 4 percent. U.S. government
notes dropped 2.2 percent this quarter, their steepest three-month loss since 2004,
according to Merrill Lynch & Co.'s Treasury Master index, as traders bet the Federal
Reserve will raise interest rates to curb price growth. The drop pushed the yield on the
benchmark 10-year note up 2 basis points to 3.98 percent at 8:30 a.m. in New York,
according to BGCantor Market Data. It fell earlier as low as 3.94 percent. The price of
the 3.875 percent security due May 2018 dropped 4/32 to 99 4/32. The two-year yield
advanced 6 basis points to 2.69 percent. Crude oil for August delivery rose as much
as $3.46 to $143.67 a barrel in electronic trading on the New York Mercantile
Exchange. It reached $142.99 a barrel on June 27 after the Fed left interest rates
unchanged at 2 percent. The market is .125 to .25 better in discount this morning.
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