By Bob Chen Dec. 11 (Bloomberg) -- Treasuries rose, led by 10-year notes, before government reports this week that economists say will show jobless claims increased and retail sales and producer prices fell, fueling demand for the safety of debt. Benchmark securities extended this month’s advance before a Labor Department report today that may show the number of Americans collecting jobless benefits increased to a 26-year high of 4.1 million. Bill Gross, manager of the world’s biggest bond fund, said he regrets not buying Treasuries in what is shaping up to be the best year for U.S. government debt since 2000. The Treasury will sell $16 billion of 10-year notes today. “Deflationary pressures will occur in the coming quarter,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which has $41.9 billion in assets. “The yields will decline further in accordance with the yield curve flattening.” The yield on the benchmark 10-year note fell two basis points, or 0.02 percentage point, to 2.67 percent as of 6:01 a.m. in London, according to BGCantor Market Data. The price of the 3.75 percent security due November 2018 rose 5/32, or $1.56 per $1,000 face amount, to 109 10/32. Treasuries of all maturities have returned 11.9 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master Index, the best performance since the securities gained 13 percent in 2000. Prices, Sales Prices paid to U.S. producers dropped 2 percent in November from the previous month, following a record plunge in October, according to a Bloomberg News survey before tomorrow’s Labor Department report. Sales at retailers probably fell 2 percent in November, a fifth month of declines, a separate Bloomberg survey showed before the data from the Commerce Department tomorrow. The Labor Department will release its reports on continuing claims and initial jobless claims for the week ended Nov. 29 at 8:30 a.m. in Washington. Gains in debt may be tempered before the Treasury’s 10-year auction today, part of record debt sales to fund U.S. financial rescues. A $28 billion auction of three-year securities yesterday drew less demand than a previous sale. Private analysts estimate the government’s borrowing needs may reach $1.5 trillion to $2 trillion in the 12 months to Sept. 30, 2009, Treasury Assistant Secretary Karthik Ramanathan said in a speech yesterday. Lower demand for government securities “will continue,” said Kei Katayama, who oversees $1.6 billion of non-yen debt as leader of the foreign fixed-income group in Tokyo at Daiwa SB Investments Ltd., part of Japan’s second-biggest investment bank. “The current environment has almost no participants because it’s close to the end of the year. It may improve in January.” ‘Additional Financing’ The three-year note auction drew a yield of 1.245 percent, the lowest on record. The so-called bid-cover ratio was 2.15 times, compared with an average of 2.50 at the past six auctions of similar-dated debt. The “Treasury needs to be prepared to meet additional financing needs if necessary,” Ramanathan said in a speech in New York. He said public spending and a slowing economy will require “conventional” ways to raise money, such as increasing the size and frequency of debt issuance, selling cash-management bills when short-term funds run low and reintroducing securities when necessary. The U.S. budget deficit swelled to $164.4 billion in November, the second straight month it widened, the Treasury Department reported yesterday. The shortfall was $98.2 billion a year earlier. “If we went back 12 months and we had known then what we know now, it would have been all invested in Treasuries” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview yesterday from Newport Beach, California. To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.

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