Treasuries were little changed, with yields near the lowest level in a week, before a government report that economists estimate will show U.S. retail sales fell for a seventh month. Investors are seeking the relative safety of government debt as the U.S. recession deepens, snapping up record amounts of securities that the Treasury Department is issuing. Lawmakers agreed on a $789 billion economic stimulus plan, trimming the measure from more than $800 billion. Treasury Secretary Timothy Geithner’s proposal to help banks, part of the government’s plan to rescue the economy, fell short of expectations among investors. “Bonds will be much safer than other assets,” said Satoshi Okumoto, general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has $63.7 billion in assets. “The plan is small compared to what the economy needs. It’s a disappointment.” The 10-year note yield was 2.78 percent as of 1:56 p.m. in Tokyo, according to data compiled by Bloomberg. The 2.75 percent security maturing in February 2019 traded at a price of 99 24/32. The yield, which fell to a record low of 2.04 percent on Dec. 18, has averaged 4.55 percent this decade. It will decline to 2.5 percent by the end of March, Okumoto said. A Commerce Department report today will show sales at U.S. retailers fell 0.8 percent in January, based on the median forecast in a Bloomberg News survey of economists. A report from the Labor Department will show jobless claims stayed near 26-year highs, a separate survey showed. China’s Treasuries A Chinese bank regulator said yesterday there are few alternatives to Treasuries, Dow Jones Newswires reported. “Except for U.S. Treasuries what else can you hold?” said Luo Ping, director general of the China Banking Regulatory Commission. U.S. government debt “is the safe haven for investment,” he said, according to the report. 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. The U.S. is scheduled to sell $14 billion of 30-year bonds today, following three- and 10-year auctions earlier this week that were the biggest ever. The Treasury’s 10-year sale yesterday drew the most bids in four months from a class of investors that includes foreign central banks. Demand at the three-year sale rose from the previous auction. Auction Demand Investors bid for 2.07 times the amount of debt on offer at the last 30-year sale Nov. 13. The average for the past 10 auctions is 2.18. Thirty-year bonds yielded 3.45 percent, declining from 4.31 percent at the prior auction. The government is issuing record amounts as it raises money to battle the recession. The U.S. budget deficit widened more than economists forecast last month as spending soared and corporate tax receipts shrank, a Treasury report showed yesterday. The excess of spending over revenue in January rose to $83.8 billion, versus a $17.8 billion surplus a year earlier. Treasuries have been a losing bet so far in 2009. Company bonds returned 2.8 percent, while government securities fell 2.4 percent, according to Merrill Lynch & Co. indexes. “The government is faced with issuing a lot of Treasury debt in coming months, and that should continue to pressure the market and bump up yields,” said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, with $2.8 billion in assets. “The government’s attention is very much on the crisis. It’s time to shuffle out of longer Treasuries and move into higher-grade corporate debt.” Pimco’s Strategy Bill Gross, manager of Pacific Investment Management Co.’s $136 billion Total Return Fund, bought mortgage-backed bonds in January, bringing the percentage of the fund’s assets in mortgages to the highest in at least a year. Pimco’s co-chief investment officer held 83 percent of the fund’s assets in mortgage-backed securities at the end of January, according to the Newport Beach, California-based company’s Web site. Longer-term Treasuries rose yesterday, pushing 30-year bond yields to a two-week low, as Geithner failed to provide details on his financial rescue strategy, in an appearance before lawmakers. The Standard & Poor’s 500 Index fell 4.9 percent on Feb. 10, the most in three weeks, when he unveiled plans to address toxic assets without an explanation of how they will work. Lawmakers are working on a separate proposal comprised of spending programs and tax cuts that President Barack Obama said is necessary to spur the economy. Yields suggest government and Federal Reserve efforts have yet to restore credit markets to where they were before trading froze last year. Spreads The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, narrowed to 0.92 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, increased to 1.23 percent yesterday 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.

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