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To: Real Man who wrote (338016)	7/7/2007 12:27:12 PM
From: clutterer	Respond to of 436258

Treasuries Fall on Waning Demand for Safety of Government Debt By Wes Goodman and Kevin Lim July 5 (Bloomberg) -- Treasuries fell as demand for the safety of government debt waned after the U.K. reduced its terror alert and the U.S. Independence Day holiday passed without incident. The benchmark 10-year note's yield climbed to the highest in almost a week as an index of Asian stocks rose to a record, European corporate bond risk fell and emerging-market debt rallied. The U.K. government held suspects after terrorist incidents in London and Glasgow last week. ``People were afraid of the terror risk,'' said Hiromasa Nakamura, who helps oversee the equivalent of $24.4 billion at Mizuho Asset Management Co. in Tokyo. ``There was no attack, so investors sold.'' The 10-year yield rose more than 4 basis points, or 0.04 percentage point, to 5.09 percent at 8:22 a.m. in New York, according to bond broker Cantor Fitzgerald LP. Yields move inversely to prices. The price of 4 1/2 percent securities due in May 2017 fell 10/32, or $3.13 per $1,000 face amount, to 95 15/32. The yield will probably decline to 4.98 percent by the end of 2007, based on a weighted average of forecasts among economists surveyed by Bloomberg. Treasuries remained lower after a private report based on payroll data showed today that companies in the U.S. added more workers than economists forecast to payrolls in June. Hiring Boost The 150,000 increase, the biggest in seven months, followed a revised gain of 98,000 in May, ADP Employer Services said. The report is based on data from 364,000 businesses with about 22 million workers on payrolls. The Morgan Stanley Capital International Asia-Pacific Index gained 0.2 percent to 156.33, after reaching a record of 156.82. Credit-default swap contracts based on debt included in the iTraxx Crossover Series 7 Index of 50 European companies declined, indicating improving perceptions of credit quality. The average spread, or extra yield, on emerging-market bonds over U.S. Treasuries narrowed 7 basis points to 1.67 percentage points, according to JPMorgan Chase & Co.'s EMBI Plus index. Treasuries have outperformed German bunds and U.K. gilts in the past month on expectations the Bank of England and European Central Bank will raise interest rates while the Federal Reserve keeps them unchanged after 17 increases in the past three years. The Bank of England today raised its benchmark rate for the fifth time in a year to 5.75 percent. The U.S. overnight rate is 5.25 percent. ECB Rate Unchanged While the ECB left its overnight rate unchanged at 4 percent today, President Jean-Claude Trichet may signal increases later this year. The ECB will raise rates again in September, according to Bloomberg surveys of economists. U.S. 10-year notes yield 46 basis points more than German bunds. Ten-year gilts yield 43 basis points more than like- maturity Treasuries, up from 33 basis points. Treasuries were closed yesterday for July 4. Terror concerns pushed the yield to a three-week low of 4.98 percent earlier in the week. New York City stepped up security measures in advance of the holiday, including deploying thousands of officers and setting up vehicle checkpoints. ``Risk concerns are fading,'' said Adam Donaldson, head of debt research at Commonwealth Bank of Australia in Sydney. The 10-year yield may rise to 5.30 percent before it becomes attractive again, he said. The Morgan Stanley Capital International Asia-Pacific Index gained 0.2 percent to 156.33, after reaching a record of 156.82. `Not Attractive' Masayuki Yoshihara, who helps manage about $24.5 billion in non-Japanese debt at Sumitomo Insurance Co. in Tokyo, said he's waiting for 10-year yields to climb to about 5.2 percent or 5.3 percent before adding to his holdings. Rising interest rates in Europe and climbing oil prices threaten to quicken inflation, he said. Crude oil traded at $71.27, near a 10-month high, on concern violence in Nigeria will disrupt supplies. ``The 10-year yield at this level is not attractive,'' Yoshihara said. Economic growth is strong enough to prevent the Fed from cutting its 5.25 percent target rate for overnight lending between banks for six months, he said. Yoshihara favors notes due in about five years because longer maturities would fall more in price should yields rise. The difference in yields between 10-year notes and inflation-protected securities showed inflation expectations remained contained. Nominal 10-year Treasuries yield 2.39 percentage points more than inflation-protected debt, in line with the average so far this year. The difference represents the rate of inflation investors expect over the life of the securities. bloomberg.com