By Susanne Walker Jan. 22 (Bloomberg) -- Treasury two-year notes rose for a third day amid concern President Barack Obama’s bank-regulation plans will reduce risk taking and uncertainty over Ben S. Bernanke’s confirmation as head of the Federal Reserve. Two-year yields dropped below 0.8 percent for the first time since Dec. 21 following the Obama administration’s proposals to limit the size and trading activities of financial institutions as a way to prevent another systemic meltdown. Lawmakers raised questions about confirming Bernanke for a second term as chairman of the central bank. “There is a general nervousness,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida, for SunTrust Bank’s private wealth management division. “The market doesn’t like the atmosphere of politicians interjecting as much as they have been. Risk trades have unwound.” The 10-year note yield was little changed at 3.60 percent at 4:35 p.m. in New York, leaving the weekly decline at 8 basis points, according to BGCantor Market data. It earlier slid to 3.58 percent. The 3.375 percent security due in November 2019 fell 2/32, or 63 cents per $1,000 face amount, to 98 4/32. Two-year note yields fell 4 basis points to 0.79 percent, and are down 8 basis points since Jan. 15. The Standard & Poor’s 500 Index fell 2.2 percent today. Investors “sensing a lot of market and regulatory uncertainty, have felt compelled to seek the safety of U.S. government debt,” wrote Kevin Giddis, head of fixed-income sales, trading and research at brokerage firm Morgan Keegan Inc. in Memphis, Tennessee. “Investors tend to shed stocks and buy bonds, especially when they are unsure of what the effects of new rules, new taxes and truly ‘out of the box’ potential legislation could have on the stability of the market.” Bernanke’s Confirmation Some lawmakers are still deciding whether to back Ben S. Bernanke for a second term as chairman of the Fed, even as President Barack Obama expressed confidence he will win Senate approval. “If nothing else it’s creating uncertainty and volatility in the market, and as we all know, nobody likes uncertainty,” said Sean Simko, who oversees $8 billion in fixed income assets at SEI Investments Co. in Oaks, Pennsylvania. Senate Majority Leader Harry Reid said he was undecided on whether to back Bernanke for a second term. Democrats Barbara Boxer of California and Russ Feingold of Wisconsin, both facing re-election this year, said today in Washington they’ll oppose Bernanke, whose term ends at the end of the month. Senate Finance Committee Chairman Max Baucus, a Democrat, and Judd Gregg, a Republican member of the banking committee, said there’s enough support for Bernanke to secure his Senate confirmation. Debt Sales The economic crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.73 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg. The Obama administration’s $787 billion economic rescue plan contributed to the record $1.4 trillion deficit in fiscal year 2009, which ended in September. U.S. marketable debt rose to an unprecedented $7.27 trillion to fund the government’s efforts to spur the economy. The Treasury is scheduled to sell $118 billion in notes next week. Speculation that yields at a one-month low will erode demand at the three note auctions damped prices earlier today. The U.S. is scheduled to sell $44 billion of two-year notes on Jan. 26, $42 billion of five-year debt the following day and $32 billion of seven-year securities on Jan. 28, totaling a record- tying $118 billion for the week. The U.S. last auctioned these maturities the week of Dec. 28, when it sold a record-tying $118 billion, equaling the amount sold in November. FOMC The Fed is scheduled to release the next Federal Open Market Committee policy decision on Jan. 27. Last month the committee repeated a pledge to keep borrowing costs “exceptionally low” for an “extended period.” The central bank cut its target rate to a range of zero to 0.25 percent in December 2008. “Recent Fed rhetoric has generally downplayed improved readings on economic growth and has given little indication that the Fed’s fundamental view has changed,” wrote Michael Pond, an interest-rate strategist in New York at primary dealer Barclays Plc, in a report. “We look for no major changes to the FOMC statement, with the ‘extended period’ language remaining in place and no change to the Fed’s asset purchase program.” The Fed is expected to complete its $1.75 trillion commitment to support debt markets by the end of the first quarter. The central bank said in November 2008 that it would buy $300 billion of Treasuries and $600 billion of mortgage securities, which it later expanded to $1.45 trillion. It ended its Treasuries purchase program in October. Resistance Levels Daily momentum on the 10-year note is “solidly bullish,” but getting close to “overbought,” wrote William O’Donnell, U.S. government bond strategist at primary dealer Royal Bank of Scotland Group Plc in Stamford, Connecticut. The key resistance level is at the 3.57 percent area, and the next resistance after that is 3.55 percent, O’Donnell wrote. The yield on the 10-year note touched an intraday low of 3.576 percent today. Sell orders may be clustered at resistance levels. Speculation Chinese officials will need to slow the pace of expansion in the world’s fastest-growing major economy helped push Treasuries toward a weekly advance. Chinese Premier Wen Jiabao said on Jan. 19 that the government will “well manage” the pace of credit growth after a record 9.59 trillion yuan ($1.4 trillion) of new loans were doled out in 2009, stoking concern of bubbles in property and stock prices. U.S. Treasuries have returned 1.4 percent this year, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit show. To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

Source