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Treasuries post first weekly loss since October amid note sales

Business Materials 27 December 2008 01:50 (UTC +04:00)

Treasuries posted their first weekly loss in almost two months as the U.S. sold record amounts of two- and five-year notes during a holiday week marked by lighter trading than usual, Bloomberg reported.

Government debt also slid after seven weeks of price gains pushed yields to historic lows. Measures of risk in the financial system moderated, with the gap between what the government and banks pay for three-month loans narrowing for a fourth week.

"The Treasury market is way, way overextended in terms of a fear trade," said Ray Remy, head of fixed income in New York at Daiwa Securities America Inc., one of 17 primary dealers that trade with the Federal Reserve. "No new shoes have dropped. Supply is an issue and will be an issue."

The yield on the two-year note fell two basis points, or 0.02 percentage point, to 0.89 percent at 4:11 p.m. in New York, according to BGCantor Market Data. It touched 0.6044 percent on Dec. 17, the lowest since regular sales of the security began in 1975. The price of the 0.875 percent note due in December 2010 rose 1/32, or 31 cents per $1,000 face amount, to 99 31/32.

The two-year note's yield climbed 15 basis points this week, the biggest increase since June and the first jump since the five days ended Oct. 31.

Other Treasuries' yields also held near record lows after industry reports showed consumer spending fell during the holiday season, adding to concern the economic slump will lead to deflation. The 30-year bond yield dropped two basis points to 2.61 percent. For the week, it gained six basis points. The yield touched 2.5090 percent on Dec. 18, the lowest since regular sales began in 1977.

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