Treasuries rose on speculation yields near a 10-week high and deepening job losses will boost demand as the U.S. prepares to sell a record amount of bonds this week. Ten-year notes led the gains after Treasury Secretary Timothy Geithner delayed the Obama-administration’s financial- recovery plan as officials debated proposals aimed at addressing the toxic debt clogging banks’ balance sheets. The U.S. plans to sell $32 billion of three-year notes tomorrow, $21 billion of 10-year Debt Feb. 11 and $14 billion of 30-year bonds Feb. 12. “Treasuries have cheapened a lot,” said David Schnautz, a fixed-income strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “You have no signs of relief and economic fundamentals are very Treasury friendly.” The yield on the benchmark 10-year note fell three basis points to 2.96 percent as of 8:56 a.m. in London, according to BGCantor Market Data. The price of the 3.75 percent security due in November 2018 rose 1/4, or $2.50 per $1,000 face amount, to 106 5/8. The yield touched 3 percent on Feb. 6 for the first time since Nov. 28. Ten-year yields, which slid to a record low of 2.04 percent on Dec. 18, have averaged 4.55 percent this decade. They will fall to 2.75 percent by the end of this week, Schnautz said. Yields will be at 2.58 percent by June 30, according to a Bloomberg survey of strategists and analysts that gives a heavier weighting to the most recent forecasts. IMF, Depression Treasuries also gained after International Monetary Fund Managing Director Dominique Strauss-Kahn said advanced economies are in a “depression.” “The worst cannot be ruled out,” Strauss-Kahn said Feb. 7 in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.” The U.S. lost 598,000 jobs in January, the most since December 1974, a Labor Department report showed Feb. 6. General Motors Corp., trying to cut enough costs by a March 31 deadline to keep $13.4 billion in U.S. aid, is readying a plan to fire thousands of employees, people familiar with the plans said. China’s loss of more than $5 billion on the $10.5 billion it invested in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007 may increase its appetite for the relative safety of Treasuries as the U.S. economy shrinks, according to James Sarni, a partner at Payden & Rygel in Los Angeles. ‘Got Burned’ “They got burned when they began diversifying outside of the government securities area, and they still might be stinging from it,” said Sarni, who helps manage $55 billion. China is the biggest foreign holder of Treasuries, owning $681.9 billion, or 12 percent of the U.S.’s outstanding marketable debt, according to the Treasury Department. Japan is next, with $577.1 billion, followed by the U.K. at $360 billion. The U.S. will require more foreign investment than ever this year as the government boosts borrowing, with $493 billion of sales earmarked for this quarter, a 34 percent increase over what it initially forecast. Goldman Sachs Group Inc., one of the 17 primary dealers that are required to bid at the auctions, said last month the U.S. will likely borrow a record $2.5 trillion in the fiscal year ending Sept. 30, almost triple the $892 billion in notes and bonds sold in fiscal 2008. Treasuries lost 0.4 percent this month, after a 3.1 percent decline in January that was the most in almost five years, according to Merrill Lynch & Co. indexes. ‘Coming Wave’ “The market may have trouble absorbing the coming wave of Treasury issuance,” strategists at Citigroup Global Markets Inc. led by Scott Peng in New York wrote to clients on Feb. 5. Ten-year yields are headed “higher,” according to the report. The difference between two- and 10-year yields widened to more than 200 basis points for the first time since Nov. 24 as investors demanded more to hold longer maturities. Federal Reserve officials have failed to resolve an internal debate over whether to purchase long-term Treasuries, even as rising yields on the securities threaten to undermine the central bank’s objective of cutting borrowing costs. Fund managers became more bearish on Treasuries last week, a survey by Ried, Thunberg & Co. showed. The company’s index measuring the investor outlook on the market through the end of March fell to 42 in the seven days ended Feb. 6 from 46 the week before. The economic analysis firm in Jersey City, New Jersey, surveyed 29 fund managers controlling $1.4 trillion. A reading below 50 means investors expect prices to fall. Credit Markets Yields suggest Fed Chairman Ben S. Bernanke hasn’t fully thawed credit markets after cutting the benchmark interest rate to a range of zero to 0.25 percent and pumping money into the financial system. Average 30-year fixed mortgage rates climbed to 5.25 percent in the seven days ended Feb. 5, from 4.96 percent three weeks earlier, according to loan finance company Freddie Mac. Rates are about 2.25 percentage points higher than 10-year Treasury yields, widening from 1.64 percentage points above five years ago. The London interbank offered rate, or Libor, for three- month dollar loans, was 1.24 percent as of Feb. 6, rising from 1.08 percent on Jan. 14. It may drop to 1.23 percent today, according to Landesbank Baden-Wuerttemberg, Germany’s biggest state-owned lender. The so-called real yield, or what investors get from 10- year notes after inflation, was 2.86 percent, near the most since October 2006. Consumer prices rose 0.1 percent for all of 2008, after increasing 4.1 percent the previous year, Labor Department figures show.

Source