Treasury yields held near record lows after industry reports showed falling consumer spending during the holiday season, adding to concern that an economic slump will lead to deflation. U.S. retail sales fell as much as 4 percent from Nov. 1 through Dec. 24 as households limited purchases to necessities and cut back on clothing, electronics and jewelry, according to SpendingPulse. One of the Federal Reserve’s preferred gauges showed inflation at the lowest level since 2004, boosting demand for government bonds’ fixed income. “I’m a bull on U.S. bonds,” said Hiromasa Nakamura, senior investor in Tokyo at Mizuho Asset Management Co., which has $41.9 billion in assets. “Income data is a main factor and also consumer spending.” The yield on the benchmark 10-year note was little changed at 2.19 percent at the 3 p.m. close in Tokyo, according to BGCantor Market Data. It touched 2.04 percent on Dec. 18, the lowest level since at least 1953, when records began. The price of the 3.75 percent security due in November 2018 stayed at 113 26/32. The yield could drop to 1.7 percent by March 31, said Nakamura. The Securities Industry and Financial Markets Association recommended that trading of Treasuries end today at 3 p.m. Tokyo time. Markets will remain closed in U.K. trading hours. Spending, Inflation The difference, or spread, between two- and 10-year note yields was little changed at 1.28 percentage points. It narrowed to less than 1.30 percentage points this week for the first time since June. The gap was 2.62 percentage points on Nov. 13. The SpendingPulse data service calculates its sales estimates based on MasterCard Inc. network transactions and adjusts for cash, checks and other payment forms. MasterCard is the world’s second-biggest credit-card company. The figures follow forecasts of falling sales from other industry groups. Sales at stores open at least a year may drop as much as 2 percent in November and December, the International Council of Shopping Centers said on Dec. 23, more than the previously projected 1 percent decline. The core PCE index, a gauge of prices tied to consumer spending behavior, fell to 1.9 percent per year, a Commerce Department report showed on Dec. 24. That was the lowest since March 2004. U.S. government debt returned 14.3 percent in 2008, the most since 1995, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. The Standard & Poor’s 500 Index of stocks fell 41 percent, the worst year since 1931. Unemployment The number of first-time claims filed for unemployment insurance last week rose to a 26-year high, indicating employers are stepping up job cuts as the recession deepens. Initial jobless claims increased more than forecast to 586,000, the most since November 1982, from a revised 556,000 the prior week, the Labor Department said Dec. 24. The four-week moving average of claims, a less volatile measure, also was the highest since 1982. The Treasury earlier this week auctioned a record $66 billion in debt. It sold $28 billion of five-year notes on Dec. 23 and $38 billion of two-year notes the previous day, both at the lowest yields ever. The TED spread, the difference in what the government and banks pay to borrow for three months, was unchanged at 146 basis points, down from a record high of 464 basis points on Oct. 10. It was 135 basis points on Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed for bankruptcy.

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