Treasury Notes Decline on Signs Japan’s Nuclear Reactor Crisis Is Easing

Treasury notes fell, pushing five-year yields to a one-week high, on optimism Japan was making progress in stabilizing a nuclear plant damaged by the nation’s worst earthquake on record.

Yields rose for a fourth day in the longest stretch of gains in more than a month as oil prices retreated over bets supply disruptions related to political unrest may be confined to Libya. Federal Reserve Bank of Dallas President Richard W. Fisher said no additional monetary stimulus will be needed after debt purchases are completed in June.

“Things have been quiet overseas, which is leading to some relief from the flight-to-quality bid in Treasuries,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “Any news could change the market’s sentiment in an instant.”

Five-year yields rose four basis points, or 0.04 percentage point, to 2.07 percent at 9:11 a.m. in New York, according to Bloomberg Bond Trader prices. The price of the 2.125 percent security maturing in February 2016 fell 6/32, or $1.88 per $1,000 face amount, to 100 1/4.

The yields touched the highest since March 11. Benchmark 10-year note yields increased two basis points to 3.35 percent. Thirty-year bond yields were little changed at 4.46 percent.

Japan’s stocks rallied as fears of a nuclear meltdown receded after Tokyo Electric Power Co. said it expects to restore power to parts of the building housing the most damaged nuclear reactors at the Fukushima Dai-Ichi plant. European equities and U.S. stock-index futures fluctuated.
Fisher’s View

Fisher, who votes on monetary policy this year, said in a speech in Frankfurt that he would have voted against the central bank’s plan to buy $600 billion of debt through June if he had a vote last year.

He said no additional monetary stimulus is necessary after the Fed completes its second round of quantitative easing, or QE2, which followed an earlier round of $1.7 trillion of purchases that ended a year ago. The Fed is scheduled to buy $6.5 billion to $8.5 billion of Treasuries due from September 2016 to February 2018 today.

U.S. economic reports this week forecast to show the recovery is gaining momentum encouraged analysts who say Treasuries will fall.

New home sales increased 2.1 percent in February from the previous month, according to the median forecast of a Bloomberg News survey before the Commerce Department’s report tomorrow. Orders for durable goods advanced for a second month, a separate survey showed before the department issues figures March 24.
‘Still Bearish’

“We’re still bearish,” said Tomohisa Fujiki, an interest- rate strategist at BNP Paribas SA in Tokyo. “The U.S. economy is still on a recovery track.”

The difference between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of trader expectations for consumer prices known as the break-even rate, has widened to 2.44 percentage points from 1.91 percentage points six months ago.

The 10-year yield will advance to 3.92 percent by year- end, according to the average forecast in a Bloomberg News survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.

Treasuries rose last week as investors sought the relative safety of U.S. government debt as concern Japan’s nuclear crisis may hurt the world’s third-biggest economy and armed conflict in Libya roiled financial markets around the world.
Quake Losses

Losses from Japan’s record earthquake and ensuing tsunami may total $200 billion to $300 billion, according to Risk Management Solutions Inc., which advises insurers and is based in Newark, California.

“Treasuries still have a higher yield compared to the Japanese bond market,” said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $70.4 billion in assets. “We have a large yen-denominated portfolio. If we need funds, we can liquidate Japanese government bonds. That’s the first priority.”

U.S. 10-year notes yield 2.09 percentage points more than similar-maturity securities in Japan, compared with the 5-year average of 2.38 percentage points.

Japan’s holdings of U.S. government debt rose for an eighth straight month to $885.9 billion in January in the longest period of increase since a 22-month span ending August 2004, the Treasury Department reported last week. The country is the second-largest foreign lender to the U.S. after China, whose holdings fell for a third month to $1.15 trillion.

To contact the reporters on this story: Cordell Eddings in New York at; Garth Theunissen in London

To contact the editor responsible for this story: Dave Liedtka at