By Dakin Campbell and Bo Nielsen Oct. 28 (Bloomberg) -- Treasuries fell, with 10-year notes dropping the most in almost a week, as stocks rallied and the U.S. government prepared a $34 billion note sale. The Treasury Department will follow today's two-year auction, which matches a record amount sold last month, with a $24 billion five-year auction on Oct. 30. The U.S. needs to borrow ``enormous'' amounts, according to economic advisory firm Wrightson ICAP LLC, as it tries to halt a financial crisis that has wiped out more than $10 trillion of stock-market value worldwide this month. U.S. stock futures headed for the largest opening increase in more than a week. ``You have to go day by day in this market and not take a large macro view,'' said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world's largest inter-dealer broker. ``In the short term we'll focus on supply and will be led by the choppiness of the equity markets.'' Yields on 10-year notes rose 8 basis points, or 0.08 percentage point, the most since Oct. 23, to 3.75 percent at 10:25 a.m. in New York, according to BGCantor Market Data. The 4 percent security maturing in August 2018 tumbled 20/32, or $6.25 per $1,000 face amount, to 102. Two-year yields climbed 3 basis points to 1.56 percent, and the 30-year note yield increased 5 basis points to 4.10 percent. Treasuries pared losses after a report showed a record plunge in consumer confidence. The 10-year note's yield exceeded that of the comparable German bund, 3.72 percent, for the first time in 11 months. The Standard & Poor's 500 Index advanced 1.8 percent. The Dow Jones Stoxx 600 index in Europe gained 2.6 percent, the first increase since Oct. 20. The MSCI Asia Pacific Index of regional shares climbed 3.7 percent. Haven Bid to Persist ``We still wouldn't get rid of Treasuries at this point,'' said James Keegan, senior portfolio manager in Upper Saddle River, New Jersey, at Ridgeworth Capital Management. ``We do believe the flight-to-quality bid is going to be here with us for a while.'' Keegan's fund, the Ridgeworth Intermediate Bond Fund, has outperformed 96 percent of its peers so far this year, and 97 percent of its peers over the last five years, according to Morningstar Inc. He spoke in a Bloomberg TV interview in New York. The last two-year auction on Sept. 24 drew a yield of 2.115 percent. Investors bid for 2.21 times the amount of debt on offer, versus the average of 2.31 for the past 10 sales. The sale of five-year notes on Oct. 30 matches the amount sold in September at the last auction of the maturity, the most since 2003. Debt Sales Announcement The Treasury Department is scheduled to announce on Nov. 5 how it plans to increase its debt sales to pay for the burgeoning cost of rescuing the financial system. The bailout includes buying equity stakes in banks and purchasing soured financial assets. Credit-market losses and writedowns of securities tied to U.S. subprime mortgages have reached $678 billion since the start of 2007. Consumers in the U.S. were the most pessimistic ever in October, raising the risk spending will tumble. The Conference Board's confidence index decreased to 38, less than forecast and the lowest reading since monthly records began in 1967, the New York-based research group said today. Government securities rose 0.8 percent in October, heading for a fifth monthly gain, according to Merrill Lynch & Co.'s U.S. Treasury Master index, as tumbling stocks spurred demand for the safest assets. The U.S. corporate and high-yield index handed investors a 9 percent loss, the most since the Merrill data began in 1997. `Still Offer Value' Investors should buy Treasuries from the ``short end'' up to two years because the Federal Reserve will cut interest rates to boost economic growth and curb rising unemployment, according to rate analyst Bulent Baygun at BNP Paribas SA. ``Treasuries still offer value at the current levels, with unemployment poised to rise, no growth, low inflation for next year and the potential ongoing deleveraging,'' New York-based Baygun wrote in a note yesterday. House prices in 20 U.S. cities declined in the year ended in August at the fastest pace on record as more properties went into foreclosure before the credit crisis deepened this month. The S&P/Case-Shiller home-price index dropped 16.6 percent in August from a year earlier, as forecast, a report today showed. Futures on the Chicago Board of Trade show 100 percent odds the Fed will lower the target rate for overnight bank loans, now 1.5 percent, by at least a half-percentage point tomorrow to help increase bank lending and spur economic growth. The chances of a 75 basis-point reduction rose to 38 percent, from zero a week ago. TED Spread The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 4 basis points to 3.47 percent today, its 12th straight drop, according to the British Bankers' Association. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, fell 5 basis points to 2.70 percentage points, still more than double what it was on Aug. 28. The figure increased to 4.64 percentage points on Oct. 10, the most since Bloomberg began compiling the data in 1984. The difference between the rate banks charge for three- month dollar loans relative to the overnight indexed swap rate, the so-called Libor-OIS spread, was 2.61 percentage points. It widened from 0.78 percentage point two months ago. To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

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