U.S. Treasuries Decline as Yield Advantage Over Japan Narrows

Treasuries declined, paring a weekly gain, on speculation a narrowing yield premium will deter global investors from buying U.S. government debt.

Bonds retreated after a rally yesterday pushed the yield advantage for two-year notes over similar-maturity Japanese debt to the lowest since 2004. Japanese net purchases of bonds abroad slowed for the first time in three weeks in the seven days ended Nov. 10, a Ministry of Finance report showed yesterday.

``I have no interest to get into this market,'' said Takashi Yamamoto, chief trader at Mitsubishi UFJ Trust & Banking Corp. in Singapore. Prices are ``too, too high.''

The two-year yield rose almost 2 basis points to 3.34 percent as of 7:28 a.m. in London, according to bond broker Cantor Fitzgerald LP. The price of the 3 5/8 percent securities due in October 2009 fell 1/32, or 31 cents per $1,000 face amount, to 100 17/32. The yield was near the lowest since February 2005. The yield may climb to 3.9 percent by year-end, Yamamoto said.

The yield advantage for two-year notes over similar- maturity Japanese debt fell to 2.56 percentage points yesterday, from 4.02 points in June. German two-year notes yield 53 basis points more than their U.S. counterparts, compared with a discount earlier in the year.

A Treasury Department report will show foreigners purchased $71.5 billion more U.S. assets than they sold in September from net sales of a record $69.3 billion in August, according to a Bloomberg News survey.

Two-year Treasuries rose for a fifth week as a slump in stocks spurred demand for the relative safety of government debt. The yield fell as low as 3.308 percent yesterday.
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