(Bloomberg) -- Treasuries fell for the first time in five days as investors weighed the probable timing of Federal Reserve interest-rate increases before speeches by U.S. policy makers today.

Even with today’s drop in prices, yields on two-year notes headed for the steepest weekly decline in more than a year and those on 10-year securities were set to fall for a fourth week. Investors pared expectations for higher interest rates in the past few days after the Fed highlighted risks to the U.S. economy. Philadelphia Fed Bank President Charles Plosser is due to speak today, as are his colleagues Esther George, Richard Fisher and Jeffrey Lacker.

“We’ve seen a very strong rally in Treasuries over the past weeks,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets in Edinburgh. “Rate expectations have been pushed out. So we’re taking a pause for breath before the raft of data next week which is going to give us an update on how the U.S. is performing given all the worries about growth elsewhere in the global economy.”

The U.S. two-year yield rose two basis points, or 0.02%age point, to 0.46% as of 9:31 a.m. London time, according to Bloomberg Bond Trader data. The rate has declined 10 basis points this week, the most since the period ended Sept. 20, 2013. The 0.5% note due in September 2016 fell 1/32, or 31 cents per $1,000 face amount, to 100 3/32.


The benchmark 10-year yield increased two basis points today to 2.33% after this week’s rally in prices sent the rate to 2.28% yesterday, the lowest in more than 15 months. The rate has dropped 10 basis points since Oct. 3.

A number of U.S. central bank officials said the nation’s expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal Open Market Committee meeting released on Oct. 8 in Washington.

Traders see a 57% chance the Fed will raise its benchmark rate by its September 2015 meeting, fed funds futures data compiled by Bloomberg showed yesterday. That compares with 78% odds seen on Sept. 30.

Bank of America Merrill Lynch’s MOVE Index, which measures price swings in Treasuries based on options, rose to 66.47 basis points yesterday, the highest since Sept. 16. The amount of Treasuries traded through ICAP Plc, the largest inter-dealer broker of U.S. government debt, was $525 billion yesterday after climbing to $563 billion on Oct. 8, the most since May 2.


The extra yield benchmark U.S. notes offered over their Group of Seven peers shrank to 0.77%age point yesterday, the least since Sept. 3. The spread between yields on 10-year Treasuries and German bunds narrowed to 1.41%age points yesterday, the smallest difference since Aug. 19. The yield on German debt due in a decade fell to a record yesterday.

Europe’s low rates are “forcing investors to look at other markets where you still get some yield,” said Su-Lin Ong, head of Australian economic and debt strategy at Royal Bank of Canada in Sydney. “Real money has been buying Treasuries and that, I think, is a function of the yield story.”

Pacific Investment Management’s $202 billion Total Return Fund, which was managed by Bill Gross until his Sept. 26 departure, cut holdings of government debt last month.

Pimco’s Total Return Fund, the world’s largest bond mutual fund, reduced holdings of government-related debt to 38% in September from 41% the previous month, data posted on the company’s website showed. The category, which is the largest portion of the fund, includes holdings of U.S. Treasury notes, bonds, agency debt, interest-rate swaps and inflation-protected securities.

The fund has returned 4.14% this year, trailing 59% of its peers.

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