The difference between yields on U.S. two- and 30-year debt narrowed to almost lowest level since November 2012 on speculation the Federal Reserve will raise interest rates next year while inflation remains restrained.
Treasuries rallied as investors sought to mirror month-end changes in benchmark indexes and on lower-than-projected consumption spending, tempering a report that showed the U.S. economy grew more than forecast in the third quarter. Even with the drop in yields, demand from international investor increased as German equivalent yields tumbled. The U.S. auctioned $29 billion of seven-year notes, concluding four sales this week totaling $108 billion.
“The Fed is moving incrementally closer to tightening, but the long-term securities are outperforming both on the view inflation is not going to be a risk anytime soon, and relative value against our global counterparts,” said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of 22 primary dealers that trade with the Fed. “It’s funny to think of Treasuries as relatively high-yielding, but they are when you look at high-grade European debt.”
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