By Wes Goodman Oct. 23 (Bloomberg) -- Treasuries fell, led by five-year debt, on speculation the government will announce two record note auctions for next week to help fund the $700 billion financial system bailout. The U.S. has ``unprecedented financing needs,'' Wrightson ICAP LLC, an economic advisory firm, said in a report. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, shrank to 2.54 percentage points, the least in a month. The narrowing raised speculation demand for the relative safety of government debt will wane as central bank actions revive credit markets. ``I'm bearish,'' said Satoshi Arai, chief portfolio investor at Toyota Asset Management Co. in Tokyo, a unit of Japan's largest automaker with $12 billion in assets. ``I'm worried about supply.'' Five-year yields rose 5 basis points to 2.58 percent as of 8 a.m. in London, according to BGCantor Market Data. The price of the 3.125 percent security maturing in September 2013 fell 8/32, or $2.50 per $1,000 face amount, to 102 16/32. Two-year yields increased 5 basis points, or 0.05 percentage point, to 1.56 percent. The Treasury will announce today that it plans to sell $38 billion of two-year notes on Oct. 28 and $27 billion of five-year notes on Oct. 30, according to Wrightson based in Jersey City, New Jersey. It will also auction $6 billion of five-year Treasury Inflation Protected Securities on Oct. 27, declining from $8 billion at the prior sale, the firm said. `Risky Assets' The U.S. government had a record $455 billion budget deficit in the fiscal year ended Sept. 30 as financial market strains slowed economic growth and spending rose. Morgan Stanley chief economist David Greenlaw predicts the shortfall may almost quadruple to about $2 trillion. The U.S. may spend $40 billion to help stem home foreclosures, the Wall Street Journal reported on its Web site. Notes rose earlier as tumbling stocks fed demand for the safest assets. The MSCI Asia Pacific Index of regional shares fell 2.9 percent, cutting its decline in half. Futures contracts show an 80 percent chance the Federal Reserve will cut its target for overnight bank loans, now 1.5 percent, by half a percentage point to spur the economy, doubling from a week ago. ``Funds are selling any kind of risky asset,'' said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., with $58.7 billion in assets. ``They will have to cut interest rates. I am quite bullish on government bonds.'' Job Losses Former Fed Chairman Alan Greenspan said job losses will increase. ``Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,'' Greenspan said in speech released by his office before he is scheduled to deliver it today. Initial jobless claims in the U.S. rose to 468,000 for the seven days ended Oct. 19 from 461,000 the week before, based on the median forecast in a Bloomberg News survey of economists before the Labor Department issues the report today. The number of people continuing to collect jobless benefits climbed to 3.715 million in the week ended Oct. 12, the most since June 2003, the survey shows. Investors shunned emerging-market assets and the cost of protecting bonds in Asia and the Pacific from default rose to a record. Argentina's planned seizure of $29 billion of private pension funds stoked concern it is headed for its second default in a decade. Belarus requested aid from the International Monetary Fund, joining Iceland, Pakistan, Hungary and the Ukraine in asking for assistance in weathering the financial crisis. The Markit iTraxx Australia index of credit-default swaps climbed 50 basis points to 3.50 percentage points. Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements. Prices rise as perceptions of creditworthiness decline. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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