Treasuries fell for a second day on speculation Barack Obama will sell record amounts of debt to battle the recession after he becomes the 44th U.S. president. Government securities headed for a loss in January as Obama prepared to make his inaugural speech today, fueling anticipation he will unveil a recovery plan. South Korea’s National Pension Service, the country’s biggest fund, and investor Jim Rogers both advised selling Treasuries. “There will be more supply, and we can’t ignore that,” said Jaemin Cheong, who trades the securities in Seoul at Industrial Bank of Korea, the nation’s biggest lender to small- and mid-sized companies. “I’m uncomfortable holding Treasuries.” Cheong said he set positions that will benefit from a decline in prices. The yield on the benchmark 10-year note rose four basis points to 2.36 percent as of 2:44 p.m. in Tokyo, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 fell 12/32, or $3.75 per $1,000 face amount, to 112 3/32. A basis point is 0.01 percentage point. Treasuries slid as the market opened following a three-day holiday weekend and Obama prepared to take office. The President-elect said Nov. 16 on the CBS News program “60 Minutes” the government will do “whatever it takes” to stem what he called the biggest economic crisis since the Great Depression. “We shouldn’t worry about the deficit next year or even the year after.” Stimulus Plan Obama is planning an $850 billion stimulus plan, on top of $700 billion approved by President George W. Bush. Economists at New York-based Goldman Sachs Group Inc. forecast Treasury borrowing will rise to a record $2 trillion this fiscal year ending Sept. 30, compared with $892 billion in notes and bonds sold during the last fiscal year. Government securities have handed investors a loss of 0.3 percent so far this month, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as efforts to curb the recession also reduce demand for the relative safety of government debt. “It’s time to sell U.S. Treasuries,” said Kim Heeseok, who oversees $160 billion as head of global investments for the Korean Pension Service in Seoul. “The stimulus plan may cause inflation,” he said in an interview yesterday. U.S. yields indicate inflation forecasts are rising. 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, widened to 46 basis points from minus eight basis points two months ago. ‘Big Mistake’ Rogers, the chairman of Singapore-based Rogers Holdings who correctly predicted the start of the commodities rally in 1999, said holding government bonds is a “big mistake,” in a speech yesterday in Hong Kong. Obama takes office as the recession spreads around the world. Royal Bank of Scotland Group Plc said yesterday it may post a loss of as much as 28 billion pounds ($39.7 billion), the most ever by a U.K. company. The U.S. government on Jan. 16 granted Bank of America Corp., the largest U.S. bank by assets, $138 billion in investments and guarantees. Concern that the recession is spreading sent the MSCI Asia Pacific Index of regional shares down 2.5 percent, snapping a two-day gain. The cost of protecting bonds in Asia and the Pacific against default increased. The Markit iTraxx Australia index of credit-default swaps rose 15 basis points to 3.25 percentage points, Citigroup Inc. prices 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. Help From Fed Treasury investors are betting on some help from the Federal Reserve this year. Central bank officials say they may buy Treasury debt, which helps determine rates on everything from mortgages to auto loans, to prevent borrowing costs from rising and delaying the economic recovery. Speculation that the purchases will start within days helped spark a rally last week in debt due in 10 years or more. “There is no point in fighting the Fed,” said Piyush Goyal, an interest-rate derivatives strategist in New York at Barclays Capital Inc., one of the 17 primary dealers that trade directly with the central bank. “If for whatever possible reasons, 10-year and 30-year Treasury yields start rising, the Fed will come in and purchase these securities.” Yields suggest some parts of the credit market are starting to thaw after a rout last year. TED Spread The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 1.02 percentage points from 4.64 percentage points on Oct. 10. Last year’s figure was the highest since Bloomberg began compiling the data in 1984. The London interbank offered rate, or Libor, for three- month dollar loans fell to 1.13 percent from 4.82 percent in October. “Governments of the leading countries are making a massive bailout of the banking sector,” said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., which oversees the equivalent of $200 billion and invests on behalf of Japan’s biggest bank. “There’s no reason to buy Treasuries. We can wait.” The 10-year yield may approach 2.5 percent this week, Bando said, rising from a record low of 2.04 percent in December. Two-year rates were little changed at 0.73 percent, versus the low of 0.60 percent set last month.

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