Treasury futures contracts rose for a second day, the first back-to-back gain in almost four weeks, as skepticism over the U.S. financial-system rescue plan sent stocks and corporate bonds down. Ten-year yields were at their lowest level in more than a week after Pacific Investment Management Co., which runs the world’s biggest bond fund, said the global economy faces a “second wave” of turmoil unless governments adopt larger spending plans. The U.S. is scheduled to sell $21 billion of 10- year notes today, after demand rose at a $32 billion three-year sale yesterday, both record offerings. “I’m modestly bullish,” said Rob da Silva, who helps oversee $240 billion globally as managing director of Asia- Pacific fixed income at Principal Global Investors in Sydney. “The financial bailout package has not been received well and the economic data continues to be poor.” Principal bought Treasuries in December, he said. The yield on 10-year futures contracts for March delivery fell three basis points to 3.25 percent as of 12:43 p.m. in Singapore, based on electronic transactions at the Chicago Board of Trade. The price rose 1/4, or $2.50 per $1,000 face amount, to 123 11/32. A basis point is 0.01 percentage point. Trading of Treasuries is closed in Japan for a holiday. The MSCI Asia Pacific Index of regional shares excluding Japan fell 2.2 percent, dropping for a second day. Credit Risk The cost of protecting bonds in Asia and the Pacific from default increased after Treasury Secretary Timothy Geithner warned it will “take time” for the U.S. government’s bank rescue packages to work. The Markit iTraxx Asia index of credit-default swaps covering 50 investment-grade borrowers outside Japan increased 10 basis points to 3.55 percentage points, according to Barclays Capital. 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. “The economic setback is still in its early stages,” Koyo Ozeki, head of Asia-Pacific credit research at Pimco’s Tokyo office, wrote in a report on the firm’s Web site. “Any further decline in housing prices could accelerate the downturn, intensifying the pernicious feedback loop and possibly leading to a second wave in the financial crisis in the next six to 12 months.” Yields suggest Fed Chairman Ben S. Bernanke hasn’t fully thawed credit markets after reducing the benchmark interest rate to a range of zero to 0.25 percent. TED Spread, Libor The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, narrowed to 0.91 percentage point from 4.64 percentage points in October. The gap averaged 0.27 percentage point from 2002 through 2006, before the credit crisis began in 2007. The London interbank offered rate, or Libor, for three-month dollar loans, was 1.22 percent as of yesterday, rising from 1.08 percent on Jan. 14. 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 2.26 percentage points higher than 10-year Treasury yields, widening from 1.62 percentage points five years ago. Geithner said yesterday he’s still “exploring a range of different structures” to bail out lenders. ‘Short on Details’ “The Geithner speech is short on details and long on rhetoric,” said Maxwell Bublitz, who oversees $3.5 billion in bonds as chief strategist at San Francisco-based SCM Advisors LLC. “In a word, it is weak,” he said yesterday. Stocks slumped, with the Standard & Poor’s 500 Index dropping 4.9 percent. The three-year note sold yesterday, which matures in February 2012, drew a yield of 1.419 percent, compared with the 1.476 average forecast in a Bloomberg News poll of seven bond- trading firms. It yielded 1.469 percent in pre-auction trading. The so-called bid-to-cover ratio, which gauges demand by comparing the number of bids with the amount of securities offered, was 2.67, compared with an average of 2.4 at the past 10 auctions. Indirect bidders, a group that includes foreign central banks, bought 44.8 percent of the amount sold, compared with 28 percent at the Jan. 7 three-year sale. “It was a good, strong auction with good demand from customers,” said Thomas Roth, head of U.S. government bond trading in New York at Dresdner Kleinwort, one of the 17 primary dealers that are required to bid in Treasury auctions. “Obviously you had a helping hand based on the disappointment with the Geithner plan,” he said yesterday. The Treasury is also scheduled to sell $14 billion of 30- year bonds tomorrow.

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