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By Michael Mackenzie and Alan Rappeport in New York and David Oakley in London

Published: June 10 2009 20:23 | Last updated: June 10 2009 21:45

US long-term interest rates rose to the highest level of the year on Wednesday, threatening the "green shoots" of recovery, after the latest sale of 10-year government debt met with a tepid response from inflation-wary investors.

Concerns about the growth of government borrowing forced the US Treasury to give investors in an auction of $19bn in 10-year notes a yield of 3.99 per cent – 4 basis points higher than the yield available before the auction. That constituted the biggest yield markup since a 10-year auction in May 2003, said Morgan Stanley. Yields on the 10-year note, the benchmark rate for US mortgages, hit a high of 4 per cent during the day, up from 3.6 per cent a week ago.

EDITOR’S CHOICE

"We are seeing traders draw a line in the sand at 4 per cent" on 10-year notes, said Tom di Galoma, head of US rates trading at Guggenheim Capital Markets. In recent months, auctions have often been awarded at higher-than-expected yields, with dealers and investors being asked to buy higher amounts of debt as the US Treasury seeks to fund a growing budget deficit.

The next test of the US Treasury’s issuance program looms on Thursday with the sale of $11bn in 30-year bonds. An auction of 30-year bonds last month went badly as investors signalled their concerns about the budget deficit.

"That did not go well last time, so there is also some additional concern," said Dominic Konstam, head of interest rate strategy at Credit Suisse.

Traders said the good news of the day was that buyers entered the market when yields reached 4 per cent. "There should be natural support for the 10-year note around 4 per cent," said Mr Konstam. Late on Wednesday, the yield on the 10-year was 3.95 per cent, up 9 basis points on the day.

The rise in yields pressured equities and the S&P 500 index fell 0.4 per cent.

Sentiment for equities was also hurt by a disappointing Beige Book survey on the economy by the Federal Reserve. Its report on the health of the economy revealed that economic conditions "remained weak or deteriorated further" from mid-April through May.

Steven Ricchiuto, chief economist at Mizuho Securities, said the report "paints a picture of an economy still in the process of finding a bottom and not having hit one".

Last week, Ben Bernanke, chairman of the Federal Reserve, said US exports could start to benefit if recent signs of stabilisation in foreign economic activity proved accurate.

However, several districts reported in the latest Beige Book that shipments for steel and wood products remain depressed, especially outside of Asia.

According to the Fed, five out of its 12 US districts said the prolonged downturn was showing signs of moderating, with the outlook improving for manufacturing and housing in some areas. But, it ... remains tight, the labour market continues to suffer from flat or falling wages and commercial property vacancy rates are rising.

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BHP Billiton-JFE Steel Settle 09-10 Iron Ore Prices - SBB

SINGAPORE -(Dow Jones)- London-based industry publication Steel Business Briefing said Thursday Australian miner BHP Billiton (BHP) has settled 2009-10 term iron ore prices with Japan's second-largest steel maker, JFE Steel.

In a news alert, Steel Business Briefing said the terms of the agreement were the same as those the company reached with rival Rio Tinto Plc (RTP) late last month.

JFE will get a 32.95% reduction in iron ore fines prices and a 44.47% reduction in lump prices, SBB said, quoting unnamed industry sources.

Among major Japanese and Korean steel mills, only JFE has reached a settlement with BHP, the report said.

BHP officials couldn't be immediately reached for comment.

Earlier in the week, Posco (005494.SE) Chief Executive Chung Joon-yang had said the company will likely conclude talks with BHP soon, at price levels similar to those reached with Rio Tinto Plc (RTP).

-By Denny Kurien, Dow Jones Newswires; +65 6415 4081; denny.kurien@dowjones.com

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http://www.reuters.com/

Oil rises above $72, IEA demand outlook supports

EU To Agree To Strengthen Emergency Oil Stocks Rules - Sources

BRUSSELS -(Dow Jones)- The European Union is expected to agree Friday to strengthen rules on emergency oil stocks and to publish data on those stocks every month, in an effort to increase its readiness for potential energy crisis.

While the European Commission still has some reservations, all 27 E.U. countries back the proposal that will be discussed by energy ministers at a meeting in Luxembourg Friday, sources close to the negotiation said.

The new legislation will align E.U. rules on emergency stocks to those of the International Energy Agency, or IEA.

E.U. countries' emergency oil stocks should equal "at the very least" 90 days of average daily net imports, or 61 days of average daily consumption, whichever is greater, according to the draft document to be discussed Friday.

The commission will publish every month a "statistical summary" of the emergency stocks, the draft reads.

The E.U. is heavily dependent on oil and gas imports. Russian cuts in gas supply to Ukraine as recently as January heavily affected the 27-country bloc and made the need for emergency procedures more urgent.

-By Alessandro Torello, Dow Jones Newswires; +32 2 741 14 88; alessandro.torello@dowjones.com

U all have a good day .

Tec