Treasury Yields Increase Most in Week on Spain Bailout Optimism

Potential Spain bailout strengthens view of Euro Zone

Treasuries declined, pushing up yields on 10-year notes the most in more than a week, as Germany signaled it may be open to a bailout of Spain, reducing the haven appeal of U.S. government debt.

Yields extended gains after a report showed the cost of living in the U.S. climbed for a second month in September. The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, widened to 2.47 percentage points, above the average of 2.17 percentage points since October 2002.

Treasury yields moved higher amid a report Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said, signaling a reversal of Finance Minister Wolfgang Schaeuble’s public position.

The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month.

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