By Dakin Campbell and Gavin Finch Dec. 2 (Bloomberg) -- Treasuries were little changed as U.S. stock futures advanced and traders speculated the rally that pushed yields to record lows over the past four days was too fast to sustain. Yields on two-, five-, 10-, and 30-year maturities fell yesterday to the lowest level since the government began regular sales after Federal Reserve Chairman Ben S. Bernanke said the central bank may purchase Treasuries to help bolster the economy. Credit default swaps on company bonds worldwide soared on mounting concern the U.S. may be in the midst of the longest slump in the post-World War II era. A measure of credit risk for financial firms fell for the first time in five days. “We’ve run pretty far, so to see the market stall and to see some profit-taking on the back end is not unexpected,” said Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co. “The overwhelming bullish influences are still entrenched.” The two-year yield fell two basis points to 0.89 percent at 8:01 a.m. in New York, according to BGCantor Market Data. The 1.25 percent security due in November 2010 rose 1/32, or 31 cents per $1,000 face amount, to 100 23/32. The yield declined to a record 0.85 percent yesterday. The 10-year note yielded 2.73 percent, close to the lowest level since the Fed started keeping daily records in 1962. Three-year yields slid two basis points to 1.11 percent, after reaching 1.08 percent, a low based on weekly records of the figure that the Fed began in 1962. The 30-year bond yield rose two basis points to 3.23 percent. Long Bond Thirty-year bonds are returning 27.8 percent this year, the most since 1995, as investors bet the Fed will buy the securities to help bring down long-term borrowing costs. Yields on the so-called long bond touched 3.1825 percent yesterday, the lowest since the U.S. began regular auctions of the securities in 1977, after Bernanke said he has “limited” room to reduce interest rates much further and may use less conventional policies. Futures on the Chicago Board of Trade show 64 percent odds the Fed will lower its 1 percent target rate for overnight bank lending by a half-percentage point on Dec. 16 and a 36 percent chance of a three-quarter-percentage point cut. Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 18 basis points to 956, according to JPMorgan Chase & Co. prices. The Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 3.5 basis points to 191.5 and earlier traded at a record 198. Treasury Returns Investors have rushed into Treasuries, pushing returns in November to 5.4 percent, the biggest monthly gain since 1981, a Merrill Lynch & Co. index shows. U.S. government debt gained 11.4 percent this year, the most since 2002. “This rally is beyond my expectations,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., part of Japan’s largest bank. “The U.S. economy has collapsed.” Demand for Treasuries will keep yields at record lows for the rest of the week, he said. Traders also sought long-term securities after the Fed said Nov. 21 it will buy as much as $600 billion of mortgage debt, fueling demand for Treasuries as a replacement for bonds backed by home loans that may be repaid early. President-elect Barack Obama, who assumes power in January, will take control of an economy that entered a recession a year ago, according to a statement yesterday from the panel that dates American business cycles. The longest slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. ‘Less Attractive’ General Motors Corp., Ford Motor Co. and Chrysler LLC union leaders are scheduled to meet tomorrow in an emergency session in Detroit as the companies seek concessions from the United Auto Workers to win $25 billion in government loans. Australia’s central bank cut its benchmark interest rate by one percentage point today to a six-year low of 4.25 percent and said economic conditions in major countries are “weak.” Treasury yields are dropping enough to raise speculation investors will look elsewhere to make new purchases. “Day by day, rates are falling,” said Tsutomu Komiya, an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-largest brokerage, which has the equivalent of $103.9 billion in assets. “Treasuries are becoming less attractive. Corporate bonds and asset-backed securities will draw investors.” TED Spread Money-market rates indicated banks are still reluctant to lend. The three-month London interbank offered rate for dollars was 2.21 percent today, one basis point lower than yesterday, and the equivalent Tokyo gauge, Tibor, rose to a 10-year high of 0.89 percent. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 217 basis points from 2008’s low of 76 basis points set in May. The spread reached 464 basis points on Oct. 10, the most since Bloomberg began compiling the data in 1984. Investors seeking the safety of U.S. debt kept the three- month bill yield at 0.04 percent. To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net.

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