US Treasuries rose after Federal Reserve Bank of San Francisco President Janet Yellen said the US central bank may keep its benchmark interest rate close to zero for years.
The advance pushed the yield on the two-year note down to the lowest level in almost a month. The yield on long-dated notes also declined as the Fed prepared to buy notes due in 10 to 16 years as part of its plan to cap consumer borrowing costs.
The two-year note yield fell two basis points to 1.10 per cent in London. The 1.125 per cent security due in June 2011 rose 1/32, or 31 cents per $1,000 (Dh3,679) face amount, to 100 2/32.
The 10-year note yield fell one basis point, or 0.01 percentage point, to 3.53 per cent. "It will fall to three per cent by the end of the year and to two per cent during 2010 as the economic recovery sputters," said Steven Major, global head of fixed income research in London at HSBC Holdings, Europe's biggest bank.
The difference in yield between two- and 10-year notes widened to 2.44 percentage points, from 2.42 percentage points on Tuesday. The spread was at 1.45 points at the end of 2008 and reached a record high of 2.82 percentage points on June 5.
US Treasury prices softened on Tuesday and benchmark yields posting their worst six-month performance in more than a decade, as signs of a better-than-expected housing market were offset by weaker consumer confidence numbers.
Meanwhile, European 10-year government bonds were little changed before Germany sells as much as €6 billion (Dh31bn) of the securities.
Two-year notes rose after Bundesbank President Axel Weber said he does not expect the German economy to return to growth before mid-2010.
France is scheduled to auction as much as €7bn of debt today.
Bonds fell on Tuesday, capping their first quarterly loss in a year, after unemployment in Europe's largest economy rose in June by less than expected by economists.
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