Treasuries Fall as Stock Advances Damp Demand for Safest Assets

Treasuries fell after a rebound in stocks reduced demand for the safety of U.S. government assets.

The two-year note yield rebounded from its lowest since 2005 as European stocks and U.S. equity futures gained. Traders reduced bets that the Federal Reserve will cut borrowing costs a third time this year.

Treasuries are ``continuing to mirror equities to a very large extent,'' said John Canavan, a fixed-income analyst in Princeton, New Jersey, at Stone & McCarthy Research Associates. ``We really need to see a sharper equity breakdown or stronger evidence of an economic slowdown to sustain this rally.''

The two-year note yield rose 4 basis points, or 0.04 percentage point, to 3.71 percent at 9:09 a.m. in New York, according to bond broker Cantor Fitzgerald LP. It touched 3.61 percent yesterday, the lowest since April 2005. The price of the 3 5/8 percent securities due in October 2009 fell 2/32, or 63 cents per $1,000 face amount, to 99 27/32.

Yields on 10-year Treasuries increased 3 basis points to 4.36 percent. Yields move inversely to bond prices.

Treasuries are headed for their best year since 2002 after Citigroup Inc., the largest U.S. bank, joined Merrill Lynch & Co., the world's largest brokerage, and Credit Suisse Group in reporting writedowns tied to mortgages made to people with poor credit histories.

Standard & Poor's 500 Index futures expiring in December increased 0.5 percent. The Dow Jones Stoxx 600 Index, a measure of European stocks, rose after three days of losses, adding 0.5 percent. The Morgan Stanley Capital International Asia Pacific Index climbed 0.4 percent after sliding almost 4 percent in the previous two sessions.
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