By Wes Goodman Nov. 28 (Bloomberg) -- Treasuries were little changed, interrupting the biggest monthly gain in almost three decades, as a stock rally this week spurred demand for higher-yielding assets. The cost of protecting Australian bonds from default fell, credit-default swaps show. Corporate debt in the U.S. and Europe rose the most since 2003 in November, luring investors with record yield spreads relative to government securities. Investors still sought the relative safety of U.S. debt this month in what President-elect Barack Obama called a “time of great trial” as the economy shrinks. “We don’t think Treasuries are attractive,” said Shuhei Mochizuki, a Tokyo-based assistant manager in the foreign bond section at Sumitomo Life Insurance Co., which has the equivalent of $31.5 billion in non-Japanese debt. “After yields fell in November, they don’t offer good value. The rally may pause.” U.S. two-year note yields rose four basis points to 1.15 percent as of 12:33 p.m. in Tokyo, according to BGCantor Market Data. The price of the 1.25 percent security maturing in November 2010 declined 2/32, or 63 cents per $1,000 face amount, to 100 6/32. Yields on debt due in 2010 fell to 0.95 percent on Nov. 20, the lowest since Federal Reserve records on the figure began in 1976. Ten-year rates were little changed at 2.98 percent. They will rise to 3.3 percent by year-end, Mochizuki said. Trading volumes may be lower than usual today. The Securities Industry and Financial Markets Association recommended trading stop at 2 p.m. in New York, after the market was closed yesterday around the world for Thanksgiving. Record Low Yields The MSCI Asia Pacific Index of regional shares rose 1 percent and was up 6.2 percent this week, the biggest five-day gain in November. The Standard & Poor’s 500 Index rallied 11 percent this week. Markit’s iTraxx Australia index declined 10 basis points to 3.20 percentage points, Citigroup Inc. data show. 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. Yields tumbled to record lows this month as the government prepared a second economic stimulus plan for $800 billion and arranged an emergency rescue of Citigroup Inc. Three-month bills yield 0.04 percent. The rate fell to 0.01 percent on Nov. 21, the lowest level since the 1940s, according to monthly figures from the Federal Reserve. Global Returns Treasuries returned 5.07 percent this month as of yesterday, the most since October 1981, according to Merrill Lynch & Co.’s U.S. Treasury Master index. The gain was 3.8 percent in Germany and 0.4 percent in Japan. “Globally, interest rates will decline,” said Hiromasa Nakamura, senior investor in Tokyo at Mizuho Asset Management Co., which has $41.9 billion in assets. “Consumer spending is declining sharply.” Mizuho favors bonds in the U.S., the U.K., Europe and Australia. Spending by U.S. consumers dropped 1 percent in October, the most since 2001, signaling the economy is sinking into a deeper recession. Futures on the Chicago Board of trade show 64 percent odds the Fed will lower the target overnight lending rate between banks by 0.50 percentage point from 1 percent on Dec. 16 and a 36 percent chance of a 0.75 percentage-point cut. “It will take the hard work, innovation, service and strength of the American people” to end the financial crisis, Obama said yesterday in his weekly radio address. Corporate Performance Investment-grade U.S. corporate bonds returned 3.6 percent in November, after losing 7.4 percent last month, according to Merrill Lynch indexes. European notes returned 1.7 percent, the most since May 2003. The extra yield on U.S. investment-grade corporate debt over government bonds rose by 0.33 percentage point to an average 6.39 percentage points, the highest since Merrill started collecting the data in 1999. Spreads on European bonds rose 0.2 percentage point to a record 4.13 percentage points. Wider spreads were “the best possible news for the market,” said Santiago Rubio, the Madrid-based head of asset allocation at a unit of La Caixa, Spain’s biggest savings bank. “There was a chance that premiums offered wouldn’t be enough to attract investors,” but they “are working,” he said. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

Source