By Wes Goodman Nov. 25 (Bloomberg) -- U.S. notes rose for the first time in three days before reports that economists estimate will show consumer confidence held at the lowest level in more than 40 years and house prices extended declines. Yields approached record lows set last week as the deepening U.S. recession increased demand for the safest assets. The U.S. arranged an emergency rescue for Citigroup Inc. and is considering doing the same for General Motors Corp. The Treasury and Federal Reserve will announce a lending program as soon as today to strengthen the consumer-finance market, two people familiar with the plan said. “There’s still buying interest” in Treasuries, said Hidehiko Maejima, international bond strategist in Tokyo at BNP Paribas Securities Japan Ltd., a unit of France’s largest bank. “Even if the financial sector has some relief, there’s a question about the automobile sector. The economic indicators remain very sluggish.” Yields on the 10-year note dropped seven basis points to 3.26 percent as of 1:42 p.m. in Tokyo, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 climbed 19/32, or $5.94 per $1,000 face amount, to 104 5/32. The yield dropped to 2.99 percent on Nov. 20, the lowest since Fed records on the figure started in 1962. A basis point is 0.01 percentage point. Monthly Return Five-year rates declined three basis points to 2.16 percent before the government sells a record $26 billion of the securities today as it increases debt sales to pay for its spending programs. Investors at the prior auction on Oct. 30 bid for 2.28 times the amount of debt on offer. The average has been 2.12 for the past 10 sales. U.S. notes returned 3.7 percent this month, the most since 1995, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as investors shunned higher-yielding securities. The New York-based Conference Board’s index of consumer confidence was at 38 in November for a second month, according to the median forecast in a Bloomberg News survey of 66 economists before the report today. It would match the lowest level since monthly data began in 1967. A separate report from S&P/Case-Shiller may show a record 16.9 percent drop in home prices in the 12 months ended Sept. 30, a Bloomberg survey showed. ‘Promote Inflation’ A U.S. rescue of Citigroup, the bank that won government guarantees for troubled mortgages and toxic assets plus $20 billion in cash, raised speculation that efforts to spur economic growth will bring inflation later. Global financial firms have reported about $969 billion in losses linked to the meltdown in the U.S. subprime mortgage market. Citigroup accounted for $66 billion, the second-largest amount in the U.S., according to data compiled by Bloomberg. General Motors, in danger of running out of cash this year, is asking for federal loans. “I’m very bearish on long-term Treasuries,” said Kenneth Naehu, head of fixed income at Bel Air Investment Advisors LLC in Los Angeles. “The U.S. is going to do whatever is necessary to keep a recession from turning into a depression. The government is clearly trying to promote inflation.” Bel Air, with $5.5 billion in assets, has positions that will benefit if 30-year Treasuries fall and plans to add to them, Naehu said. Thirty-year yields held at 3.78 percent after prices dropped in the past two days. Default Protection The Treasury and the Fed will help fund new loans packaged into securities for sale to investors, people familiar with their plan said. Treasury Secretary Henry Paulson, who scheduled a press conference for today, said two weeks ago that he wants to spur lending for automobile purchases and college education while also reducing the cost of credit-card debt. The MSCI Asia Pacific Index of regional shares gained 2.1 percent, erasing yesterday’s decline, because of the Citigroup rescue. The Standard & Poor’s 500 Index rose 6.5 percent yesterday, climbing 13 percent in two days. The cost of protecting Japanese and Australian corporate bonds from default declined, according to traders of credit- default swaps. The Markit iTraxx Japan index fell 55 basis points to 3 percentage points, according to Credit Suisse Group AG. The swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. Yields indicate the slowing economy has pushed inflation expectations down. The difference between rates on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes, which reflects the outlook among traders for consumer prices, was 20 basis points from 13 basis points at the end of last week. The spread narrowed from this year’s high of 2.61 percentage points set July 3. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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