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By Bloomberg

Treasuries rose, pushing 10-year note yields down to a one-week low, on demand for safety as stocks fell around the world and as China tightened lending rules for local governments.

U.S. debt rallied as the Stoxx Europe 600 Index slid, while China’s government tightened collateral rules for short-term loans, suggesting slower growth. Three-year note yields held above 1 percent before the U.S. sells $25 billion of the securities today and as the Federal Reserve moves closer to raising interest rates.

“It’s the risk-off tone in everything,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “It’s creating fund flows into safe haven investments and Treasuries is one of the destinations.”

Benchmark 10-year note yields dropped four basis points, or 0.04 percentage point, to 2.22 percent as of 8:29 a.m. New York time, according to Bloomberg Bond Trader data. The yield touched the lowest level since Dec. 1. The price of the 2.25 percent security due in November 2024 was 100 7/32.

Three year yields fell three basis points to 1.04 percent. They jumped the most since July 2011 last week as the U.S. reported a stronger-than-expected jobs gain, fueling speculation the Fed will drop its vow to hold rates low for a “considerable time” at its Dec. 16-17 meeting.

Market Returns

The securities, which are among the most sensitive to what the Fed does with its benchmark, are barely eking out a gain in 2014. The three-year notes have returned 0.8 percent this year, versus 9.8 percent for 10-year debt.

Longer-term Treasuries, which are more influenced by inflation, are outperforming their shorter-dated counterparts as consumer prices hold in check. The result is a narrowing in the difference between three- and 30-year yields to 184 basis points yesterday, the lowest level since January 2009.

The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, fell to 1.71 percentage points, the lowest level in three years.

The Fed will raise its benchmark in about 8 1/2 months, based on data compiled by Morgan Stanley. The figure has fallen from about 10 months a week ago.

Fed Views

Fed Bank of Atlanta President Dennis Lockhart said yesterday he expects the central bank to begin raising borrowing costs in the middle of next year or later. Policy makers have kept their benchmark, the target for overnight lending between banks, in a range of zero to 0.25 percent since 2008.

Lockhart, who votes on the Fed’s policy committee in 2015, said recent economic evidence was encouraging, while also urging the central bank to exercise “patience” over the timing of the initial rate increase to avoid committing a policy error that would force it to backtrack.

China took one of its biggest steps yet to push local governments away from using opaque financing vehicles to raise money as policy makers seek to reduce leverage and develop a more transparent municipal bond market.

The nation’s clearing agency for exchanges said yesterday it won’t allow bonds rated below AAA or sold by issuers graded lower than AA to be used as collateral for short-term loans obtained through repurchase agreements.

The last three-year auction in November drew bids for 3.18 times the amount of debt available. The average for the past 10 sales of this maturity including last month’s is 3.30.

The Treasury also plans to sell $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds Dec. 11.