Treasury Yield Curve Near Steepest Since 2005 on Rate Cut Bets

The difference in yields between U.S. two-year and 10-year Treasury notes held near the widest since April 2005 as deepening credit-market losses spurred investors to raise bets on a reduction in interest rates next month.

Morgan Stanley, the second-biggest U.S. securities firm, joined Merrill Lynch & Co. and Citigroup Inc. in booking losses on subprime mortgage-related assets and said the outlook for credit markets is bleaker than in September. Interest-rate futures show the Federal Reserve will lower its target rate a quarter-point to 4.25 percent on Dec. 11 to shield the economy.

``The yield curve is telling you the subprime turmoil has pushed up expectations that the Fed will have to cut rates further,'' said Peter Mueller, fixed-income strategist at Commerzbank AG in Frankfurt. ``Treasuries are looking stretched at these levels. The problem is with uncertainty remaining high, you don't know when is the right time to sell.''

The two-year note yield rose 6 basis points, or 0.06 percentage point, to 3.59 percent at 8:35 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 3 5/8 percent securities due in October 2009 fell 3/32, or 94 cents per $1,000 face amount, to 100 2/32.

The number of Americans filing first-time claims for unemployment benefits fell more than forecast, suggesting the job market remains resilient.

Initial jobless claims decreased a third straight week, by 13,000 to 317,000 in the week that ended Nov. 3, the Labor Department said today in Washington. The four-week moving average, a less volatile measure, rose to 329,750 from 327,750.

Ten-year note yields were little changed at 4.33 percent. Yields move inversely to bond prices.
good-investor-idia.com