By Wes Goodman Oct. 30 (Bloomberg) -- Treasuries fell as stock gains and a revival in the credit markets spurred speculation bidding will decline at a $24 billion five-year note sale today. The auction matches the largest since 2003 as the U.S. increases sales to pay for its $700 billion bank-rescue package. Yields on five-year securities have almost halved since June last year as the global financial crisis spread and investors sought the safest assets. ``Treasuries are expensive,'' said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, who helps invest $2.8 billion. ``They make the rest of the world look cheap, whether it's municipal bonds, agency securities or mortgage-backed debt. We like agencies.'' The yield on the benchmark 10-year note increased 3 basis points to 3.89 percent as of 6:01 a.m. in London, according to BGCantor Market Data. The price of the 4 percent security maturing in August 2018 dropped 7/32, or $2.19 per $1,000 face amount, to 100 29/32. Five-year yields increased 3 basis points to 2.75 percent. They have fallen so far this year that they are about 30 basis points less than yields on same-maturity Treasury Inflation Protected Securities. A basis point is 0.01 percentage point. The conventional notes offered a premium of 1.84 percentage points over the protected securities on average for the past six months, according to data compiled by Bloomberg, to compensate investors in case of quickening costs for goods and services. At the last five-year auction on Sept. 25, investors bid for 1.91 times the amount of debt on offer. The average for the past 10 sales is 2.12. Fannie, Freddie Investors can earn extra yield by buying so-called agency bonds issued by Fannie Mae and Freddie Mac, the two largest providers of funds for mortgages that the U.S. government seized last month. Fannie Mae's five-year notes yielded 1.40 percentage points more than Treasuries, Bloomberg data show. The spread narrowed from 1.52 percentage points on Oct. 27, which was the most since Bloomberg began tracking the figure in 1997. Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., said he recommends mortgage- backed securities issued by government-sponsored enterprises such as Fannie Mae and Freddie Mac, and the debt of banks that have sold stakes to the U.S. government. ``With Uncle Sam as your partner, default seems remote,'' Gross said in a monthly commentary posted on the Web site of Newport Beach, California-based Pimco. Shares Gain The MSCI Asia Pacific Index of regional shares rose 8.5 percent, rallying for a third day and helping curb demand for the relative safety of government securities. The cost of protecting Asia-Pacific bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan, dropped 70 basis points to 4.90 percentage points, according to ICAP Plc. Credit-default swaps, contracts to protect against or speculate on default, fall as perceptions of credit quality improve. The Fed agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time. Interest-rate derivatives imply banks are becoming more willing to lend. 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, narrowed to 2.65 percentage points from 3.64 points on Oct. 10. Treasury Supply Two-year Treasury notes rose yesterday after the Fed cut its benchmark interest rate to 1 percent, matching the lowest in half a century, saying ``downside'' risks to growth remain in the U.S. economy. The Commerce Department will say the economy shrank at a 0.5 percent annual rate in the third quarter, the most since the 2001 recession, according to the median estimate in a Bloomberg News survey of economists before the report today. Longer-term securities lagged behind in anticipation of increased government debt sales. The Treasury is scheduled to announce on Nov. 5 how it will increase debt sales. ``Supply coming from the Treasury market is going to be very large and people will start to factor that in,'' E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York, said yesterday. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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