U.S. Two-Year Treasury Heads for Fifth Straight Weekly Decline

The difference in yield between two- and 10-year notes narrowed for a third straight day, to 75 basis points, in a sign that investors expect Fed rate increase to limit inflation. The gap was 241 basis points a year ago. Bill Gross, manager of the world's largest bond fund, said the yield on the 10-year U.S. Treasury note will stay above 4 percent. More increases in the Fed's benchmark rate may begin to undermine demand from foreign central banks that has kept the yield lower than it otherwise would be, causing a `mispricing,'' according to Gross, chief investment officer of Pacific Investment Management Co. Gross made the commentary in a report published on Newport Beach, California-based Pimco's Web site yesterday. Demand for two-year securities at yesterday's auction of $24 billion of the notes yesterday matched the lowest since January 2004.