Treasuries rose on speculation yields near the highest level since November and the deepening U.S. recession will stoke investor appetite at today’s record $32 billion three-year note sale. Bonds advanced as most stocks in Europe and Asia declined and UBS AG, Switzerland’s largest bank, reported a larger-than- expected fourth-quarter loss, buoying investor appetite for the safest assets. Federal Reserve Chairman Ben S. Bernanke may tell Congress today the central bank is prepared to purchase U.S. debt to cut long-term interest rates. “We’ve had a pretty decent selloff the last couple of weeks, and I think we finally got to levels where people came in and put some money to work,” said Jeffry Feigenwinter, head of Treasury trading at BNP Paribas Securities Corp. in New York, one of the 17 primary dealers that trade with the Fed. “You got to some key technical levels and that brought in some overseas interest from central banks.” The yield on the 10-year note fell four basis points, or 0.04 percentage point, to 2.95 percent at 7:59 a.m. in New York, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 increased 3/8, or $3.75 per $1,000 face amount, to 106 3/4. The benchmark note’s yield exceeded 3 percent yesterday for the first time since Nov. 28 after falling to a record low of 2.04 percent on Dec. 18. Ten-year yields will decline to 2.8 percent by the end of the quarter, according to David Keeble, head of fixed-income research at Calyon, the investment-banking unit of Credit Agricole SA. The Fed will start buying Treasuries if yields rise to between 3.25 percent and 3.5 percent, he said. Three-Year Auction “Bernanke will make sure the market is well aware that they stand ready to buy Treasuries,” Keeble said. “We were getting a little bit too concerned about the supply that’s coming up.” The U.S. plans to sell $32 billion of three-year notes today, followed by $21 billion of 10-year notes tomorrow and $14 billion of 30-year bonds Feb. 12, in the Treasury’s biggest weekly sale. Investors bid for 2.21 times the amount of debt on offer at the prior three-year note sale on Jan. 7. The average for the past 10 auctions is 2.4. Three-year note yields fell four basis points to 1.42 percent today, compared with the high yield of 1.2 percent at last month’s sale. U.S. Treasury Secretary Timothy Geithner is scheduled to unveil at 11 a.m. a financial rescue plan aimed at restarting credit markets. The package will include a fresh round of injections of taxpayer funds into banks, an expanded Fed-led effort to spur consumer and small-business loans and an initiative to address the toxic assets clogging banks’ balance sheets. ‘Very Warily’ “Treasuries are going to trade very warily ahead of the Geithner address,” said Moyeen Islam, a fixed-income strategist at Barclays Capital in London. “Treasury spreads may narrow.” Ten-year yields will decline to 2.2 percent by the end of the first quarter, Islam said. Fed officials have yet to resolve an internal debate over whether to purchase long-term Treasuries, according to people familiar with the deliberations. Bernanke first talked about the option of buying Treasuries on Dec. 1. UBS plans to eliminate an additional 2,000 jobs at its securities unit and expects to be profitable in 2009 after posting a record loss last year. The world’s largest manager of money for the wealthy is scaling back risk at the securities unit and seeking to stem defections by rich clients after posting a fourth-quarter loss of 8.1 billion Swiss francs ($6.9 billion). New York Lottery Treasuries lost 3.6 percent this year, their worst start to a year since 1980, according to Merrill Lynch & Co.’s Treasury Master Index data. Yields climbed on longer-maturity debt in five of the past six weeks as bond prices fell amid concern that the Fed won’t buy U.S. debt to keep yields low while the government increases borrowing. Investors are selling Treasuries as credit markets begin to thaw, reducing the need for the haven of government debt. Three- month Treasury bill rates climbed to 0.31 percent after plunging to minus 0.04 percent on Dec. 4. The New York Lottery is proposing moving its $1.3 billion prize fund into investments such as stocks, corporate bonds, real estate and hedge funds and out of the safety of Treasuries. New York would be the first state lottery among the 20 largest to shift to pension fund-style investments from U.S. debt, according to annual reports. Yields indicate Bernanke hasn’t fully unlocked credit markets after reducing the benchmark interest rate to a range of zero to 0.25 percent. Mortgage Rates The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, narrowed to 91 basis points from 464 basis points in October. The gap averaged 27 basis points from 2002 through 2006, before the credit crisis began in August 2007. Average 30-year fixed mortgage rates rose 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 226 basis points higher than 10-year Treasury yields, widening from 162 basis points five years ago. Investors are adding to inflation bets as President Barack Obama works to push his economic stimulus plan through Congress. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, was 137 basis points, near the widest since October.

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