By Wes Goodman
Nov. 30 (Bloomberg) -- Treasuries rose for a third day on speculation the debt crisis in Ireland will spread to Portugal and Spain, increasing demand for the relative safety of U.S. government securities.
U.S. bonds also gained as the Federal Reserve prepared to buy $6 billion to $8 billion of Treasuries maturing from 2014 to 2016 today, after scooping up $9.4 billion of debt yesterday as part of its plan to boost growth. The market still headed for its biggest monthly loss since March after the U.S. economy showed signs of improving into 2011.
?The Europe situation is supporting the bond market,? said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. ?The Fed is also helping the market. We look for yields to start falling again.?
The benchmark 10-year yield declined two basis points to 2.81 percent as of 11:17 a.m. in Tokyo, according to BGCantor Market Data. The 2.625 percent security maturing in November 2020 rose 6/32, or $1.88 per $1,000 face amount, to 98 13/32.
Treasuries advanced on speculation an 85 billion euro ($111.6 billion) rescue for Ireland will fail to contain Europe?s sovereign-debt crisis. Ireland on Nov. 28 became the second country to tap European assistance, following Greece.
?The concern is what?s next,? said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies Group Inc., one of the 18 primary dealers that trade with the Fed. ?At what point do we legitimately begin to question the extent the European Central Bank can be an effective backstop and what unknowns remain out there??
Default Swaps
The cost of insuring against default on Portuguese and Spanish government debt soared to record levels.
Credit-default swaps on Portugal jumped 36 basis points to 538 yesterday, according to data provider CMA. Contracts on Spain climbed 28 basis points to 351.
Credit-default swaps protect debt against default, and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement. The contracts pay the buyer face value in exchange for the securities if a borrower fails to meet its debt agreements.
U.S. government securities have handed investors a 0.8 percent loss this month as of yesterday, Bank of America Merrill Lynch indexes show, the biggest decline since March.
--Editors: Nicholas Reynolds, Jonathan Annells
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
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