NEW YORK (MarketWatch) — Treasury prices rose on Thursday, pushing yields down in a tight range, as European Union leaders began a two-day summit, though investors have very low expectations for progress on key steps needed to resolve the region’s debt and banking crisis.

Bonds held onto gains after the U.S. government’s sale of 7-year notes (7_YEAR) came at the lowest yield on record.

Yields on 10-year notes (10_YEAR) , which move inversely to prices, fell 5 basis points to 1.58%. A basis point is one one-hundredth of a percentage point.

Yields on 30-year bonds (5_YEAR)  declined 3 basis points to 2.66%.

Five-year yields (5_YEAR)  fell 6 basis points to 0.69%.

EU leaders are expected to focus on addressing the 2-1/2 year old euro-zone debt crisis, with programs to spur growth and work more on a regional bank union and bank supervisor most likely, analysts said. Read more on EU summit.

“Hopefully the market is getting past the point of expecting a grand bargain and can let them get to a solution,� said Tom Murphy, who heads up investment-grade corporate debt at RiverSource Investments, which oversees about $165 billion in fixed-income assets. “I don’t have any confidence the European situation gets much better, but I hope it doesn’t get much worse.�

They may discuss how the already-approved bailout programs — the European Stability Mechanism and European Financial Stability Fund — relate to private bond holders and how they can distribute aid, according to analysts at Credit Suisse.

But what’s pretty unlikely to see details on would be agreement to unify fiscal decision making, which Germany has demanded as a necessary precursor to any form of jointly-guaranteed debt instrument, often lumped together as euro bonds.

Bonds rose “as, get this, a disappointing outcome is expected from the EU summit,� quipped David Ader, head of government bond strategy at CRT Capital Group.

But still, yields have remained in a tight range in recent sessions, and could have trouble rising much as the continued problems in Europe support safe-haven demand for U.S. bonds. Read about Thursday’s bond action.

“The sideways price action is not hard to understand,� Ader wrote in a report. Based on investor positioning surveys, “the market clearly has moved to a very neutral view even as it has accepted/respected the litany of risks that favor support for Treasurys in the weeks and months to come.�

Also supporting bonds was an extension of the sell-off in U.S. equities after the Supreme Court upheld the Affordable Care Act of 2010. Read more on Supreme Court, healthcare.

Last auction of the week

The Treasury Department sold $29 billion in 7-year notes at 1.075%, though demand from a group of investors which includes domestic money managers was notably light. Read more on 7-year auction results.

The government already sold 2-year (2_YEAR)  and 5-year notes this week, receiving tepid demand.

Those auctions didn’t come at record low yields, which “is a sign of continued investor migration up the curve,� as shorter-term rates are expected to stay locked down by the Federal Reserve’s on-hold interest-rate policy, said strategists at Nomura Securities.

Treasury prices shrugged off data showed U.S. initial jobless claims fell 6,000 to 386,000 in the latest week, after the prior week’s number was revised up. A separate report showed the U.S. economy grew an unrevised 1.9% in the first quarter. Read about jobless claims.

For some perspective on the European sovereign debt crisis, today’s chart illustrates the forecasted 2012 debt to GDP ratio for each of the PIIGS (red bars) plus a handful of today’s major economies (blue bars). While the PIIGS are currently enduring relatively high debt loads, it is noteworthy how some of the relatively safe nations/bond markets (e.g. United State and Germany) are not far behind. These relatively high debt loads are of concern as they could lead to higher taxes sometime in the future and can risk fiscal crises if bond holders sense an increasing risk of default. The current crisis in Europe provides a clear example of the bond market’s reaction (i.e. higher bond yields) to increased default fears. This leads to a very interesting case study that is Japan. With a debt to GDP ratio of over 200%, the Japanese 10-year bond yield is a relatively low 0.83%. Why? At the moment, the bond market feels that the Japanese have the ability to repay their debts — in part due to Japan’s perceived ability to raise taxes. To that end, Japanese Prime Minister Yoshiko Noda just won opposition support for the doubling of the nation’s sales tax to 10% by 2015. So it’s not just the amount of debt but also convincing your banker that you are good for it.

Quote of the Day
“I like players to be married and in debt. That’s the way you motivate them.” – Ernie Banks

Notes:

Yes, they predicted doomsday three years ago. Listen: “Over the last 30 years, we have built a financial system that threatens to topple our global economic order,” wrote Simon Johnson and Peter Boone. “We have let an unsustainable and crazy ‘doomsday cycle’ infiltrate our economic system.”

This doomsday “cycle will not run forever … The destructive power of the down cycle will overwhelm the restorative ability of the government, just like it did in 1929-31.” In 2008 “we came remarkably close to another Great Depression. Next time, we may not be so lucky.”

That was 2009. Since then Johnson, former IMF chief economist, co-wrote last year’s bestseller “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown” and the new “White House Burning.”

Other new books echo the same doomsday warning: Peter Schiff’s “The Real Crash: America’s Coming Bankruptcy” … Paul Krugman’s “End This Depression Now” … James Rickards’s “Currency Wars” … Philip Coogan’s “Paper Promises” … Joseph Stiglitz, “The Price of Inequity” … Ian Bremmer, “Every Nation For Itself,” and other reminders of doomsday.

Folks, the “next time” is here. Our luck is running out. And unfortunately, our leaders in both parties are blinded by an obsession to win an election. Ergo, they will fail to act in time.

….read more HERE or Read All 20 Rules HERE

I began writing what I thought would be a report. Toward the final chapters in Adam Smith’s Wealth of Nations, he wrote about Public Debt asking why anyone considered it to be quality since all government defaulted on their debts and never paid them off. I assumed the list wasn’t that long, since everyone knew about the defaults of Spain, France, and England. The more I began to investigate since Smith merely made that statement with no reference to such defaults, the more I was left in a state of devastating shock. When it comes to research, those that know me understand that I leave no stone unturned. I allow the research to carry me along a journey of exploration. I neverPRESUME anything and try to LEARN myself to round out my knowledge.It is almost finished. I am publishing for the first time the Table of Contents. There just seems to be such profound conviction that everyone will flee to gold, gold will save the world, and there is always an alternative for capital to flee. The emails from the Goldbugs just refuse to understand that there is also DEFLATION. Here is the latest:

“You assume two things here, sadly both are wrong. You assume firstly that the US dollar will always be more stable than (for example) the yuan, the Brazilian Real, the Euro. A dangerous and flawed assumption, one perhaps made by a dying Roman empire, and the British Empire too. Nope, always something new out there to step in. Your other assumption, even more flawed, and currently being proven wrong as I type the world over, is that capital will flee to another fiat. Nope, much of it will flee to (or try to flee to) solid physical gold. Because that is what the world has always done. ‘Giant’ money is already there, the US’s strategic enemies are already there, and adding gold reserves every month, rather than soaking up the ever-growing flow of US dollar debts.”

….read much more HERE

Ed Note: Ryan Irvine is Michael’s Money Talks guest 8:30 am PST this Saturday. 

Saturday, Greeks will head to the polls in a second attempt to form a government — an election/government that may ultimately determine if Greece remains in the euro zone. While the implications for Greece are dramatic, there is concern that a Greek exit would threaten other euro zone members (e.g. Spain and Italy) and potentially test the ability of European institutions (e.g. the European Central Bank) to prevent contagion. Today’s chart helps illustrate the risk of European debt by plotting out the 10-year government bond spread (versus the German Bund) for all the PIIGS (i.e. Portugal, Italy, Ireland, Greece, and Spain) from 2007 to the present. For example, the Greek 10-year government bond yield (light blue line) is currently 27 percentage points greater than that of the relatively stable German Bund. That is a far cry from where it was back in the summer of 2009. Currently, however, many are focused on the third and fourth largest euro zone economies (i.e. Italy and Spain). A run on the financial institutions of these more substantial economies would have global implications. It is noteworthy that the Italian and Spanish 10-year government bond spread has not declined after the ECB offered three-year loans in December and February.

Notes: Where’s the Dow headed? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus. To subscribe to the free ChartoftheDay service go HERE or click on the Chart Below: