By Candice Zachariahs Oct. 14 (Bloomberg) -- Yields on U.S. and European government securities may fall as investors seek the relative security of state debt amid a global recession, said Goldman Sachs Group Inc. ``Higher net issuance should be met with high demand by the domestic private sector, including financial institutions, as risk preferences shift toward assets of the highest credit quality,'' wrote analysts led by London-based Francesco Garzarelli, chief interest-rate strategist at Goldman Sachs. The world may be heading for a steep slump after an international credit squeeze crunched economies from the U.S. to Singapore. Rescue plans calling for governments to spend as much as $2.5 trillion to prop up banking systems may stabilize money markets, without avoiding a global slowdown that will drive investors to buy bonds, Goldman analysts said. U.S. President George W. Bush on Oct. 3 signed into law a measure giving Treasury the authority to spend as much as $700 billion to invest in companies and buy illiquid debt. Germany joined France, Spain, the Netherlands and Austria yesterday in committing 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders. ``The synchronized expansion of monetary policy around the world and the concerted government actions on both sides of the Atlantic'' may stabilize ``the path of interest rates,'' the analysts wrote. Yields to Fall Yields on 10-year Treasuries may fall to 3.4 percent, said Goldman Sachs, from 4.04 percent at 12:03 p.m. in Tokyo. German bunds may decline to 3.5 percent, from 4.07 percent today, while in the U.K., the 10-year note may drop to 4 percent from its closing yield of 4.66 percent yesterday. Treasury yields probably won't rise above 4.2 percent, the level they would be expected to reach if the U.S. economy is little affected by the credit crisis, Goldman said. The top of this year's trading range would be 4.4 percent for bunds and 4.9 percent for U.K. gilts, according to the report. The rescue plans will increase debt sales, which raises concern that bond prices may fall, Goldman Sachs said. The impact of the greater supply of bonds will be limited as the world heads for recession, according to the report. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Source