Treasuries rallied as stocks tumbled after the Obama administration said bankruptcy may be the best option for General Motors Corp. and Chrysler LLC and the Federal Reserve readied its third purchase of U.S. debt. U.S. securities headed for the first monthly advance this year before the central bank buys Treasuries with the longest maturities as part of an effort to lower borrowing costs and revive economic growth. Global stocks fell on concern the recession will lead to further losses in the financial industry. Treasury Secretary Timothy Geithner said yesterday some financial institutions will need “large amounts” of aid. “Treasuries are up because equities around the world are getting hit and because of the Fed buyback on the long end of the market,” said Theodore Ake, head of U.S. Treasury trading in New York at Mizuho Securities USA Inc., one of the 16 primary dealers that trade with the Fed. “Between now and the buyback, the long end of the market will have a bid.” The yield on the 30-year bond fell seven basis points, or 0.07 percentage point, to 3.54 percent at 9:10 a.m. in New York, according to BGCantor Market Data. The 3.50 percent security due in February 2039 rose 1 11/32, or $13.44 per $1,000 face amount, to 99 9/32. The 10-year yield fell seven basis points to 2.69percent. Yields have now gained 16 basis points in the eight days since the Fed’s March 18 announcement it would buy Treasuries sent yields down 47 basis points, the most since 1962. Fed Purchases The Fed will today buy U.S. debt maturing from August 2026 to February 2039. It will purchase government securities maturing from May 2012 to August 2013 on April 1 and from September 2013 to February 2016 on April 2. Last week the central bank bought $15 billion of U.S. debt, even as the Treasury sold a record $98 billion of notes. “There’s a potential for Fed buybacks to have a greater impact this week than last week because there’s no supply,” said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., another 16 primary dealer. “Last week the supply pressured yields.” Government securities returned 1.8 percent this month, the biggest gain since December, according to Merrill Lynch & Co.’s U.S. Treasury Master index. A government report at the end of the week may show the jobless rate climbed in March to the highest level since 1983, helping drive demand for government debt. The MSCI World Index of shares declined 1.6 percent, while the Dow Jones Stoxx 600 dropped 2.4 percent. Futures on the Standard & Poor’s 500 Index slid 2.4 percent. Longer Durations Investors should hold durations that are longer than those of the benchmarks they use to gauge performance as the Fed buys, analysts including Mustafa Chowdhury at Deutsche Bank Securities Inc. in New York wrote in a report March 27. Duration is a measure of a portfolio’s sensitivity to changes in yields, and a higher figure reflects a more bullish position. Gains that pushed the S&P 500 Index toward the biggest monthly advance since 1991 may not last, the report said. The index has climbed 11 percent since the start of the month. “We continue to expect Treasury yields to move lower,” the report said. “We also expect the recent euphoria in the equity market to fade.” Investors should buy Treasuries when they decline rather than sell when they rise, as Geithner’s measures to remove toxic assets from bank balance sheets drive stocks and yields higher, Dominic Konstam and Carl Lantz, interest-rate strategists at Credit Suisse Group AG in New York, wrote in a March 27 report. GM’s Board President Barack Obama’s administration asked GM Chief Executive Officer Rick Wagoner to step down, and the automaker will replace most of its board, an administration official said. Chrysler will get $6 billion in aid only if it completes a partnership with Italian carmaker Fiat SpA in 30 days, said the official, who spoke to reporters and declined to be identified before Obama presents the decision. The outlook for the auto industry sent Treasuries “flying,” said Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Inc., the world’s largest broker of exchange-traded futures and options contracts. The cost of insuring corporate debt from default climbed, stoking demand for the relative safety of government notes. Crisis ‘Ninth Inning’ Contracts on the Markit iTraxx Crossover Index of 45 European companies with mostly high-risk, high-yield credit ratings increased 20 basis points to 930, according to JPMorgan Chase & Co. prices. The index is a benchmark for the cost of protecting bonds against default and an increase signals a deterioration in the perception of credit quality. “The Geithner plan, unlike previous plans, puts us into the ninth inning of the financial crisis,” they wrote. “If the problem is clogged balance sheets and insufficient capital to support credit growth, the Public Private Partnership Investment Program plus the Term Asset-Backed Securities Lending Facility should allow for the removal of a substantial proportion of toxic assets under favorable pricing conditions for the banking system.” U.S. plans to borrow record amounts to fund attempts at snapping the U.S. recession will send 10-year yields as high as 6 percent by the end of 2010, said Jason Trennert, chief investment strategist at Strategas Research Partners in New York. U.S. debt sales will almost triple this year to a record $2.5 trillion, according to estimates from Goldman Sachs Group Inc., one of the 16 primary dealers that are required to bid at the government’s debt sales. Breakeven Rate The difference between yields on 10-year notes and Treasury Inflation Protected Securities, representing the outlook among traders for consumer price gains, climbed to 1.45 percentage points from near zero at the end of 2008. The spread is still less than the five-year average of 2.27 percentage points. U.S. consumer prices rose 0.2 percent in the 12 months ended Feb. 28, meaning 10-year yields are 2.50 percent after inflation. That so-called real yield is more than double the five-year average. Mortgage and corporate securities are outperforming Treasuries this quarter for the first time since the period ended in June, before the collapse of Lehman Brothers Holdings Inc. drove investors to the safest debt and froze credit markets, Merrill’s data show. Not ‘Thrilling’ For the first quarter, Merrill Lynch’s U.S. Treasury Master Index lost 1.92 percent, while its main mortgage index rose 2.12 percent and the index of non-financial corporate debt gained 2.16 percent. “We don’t think Treasuries are very thrilling,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., which holds $90 billion in fixed-income assets. Bernanke wants to keep Treasury rates low so “investors do what we’re doing, that is, jump in and drive all the spreads down,” he said of the gap between yields of riskier assets and government debt. The average rate on a 30-year fixed mortgage fell to 4.85 percent last week, according to Freddie Mac, the lowest since the McLean, Virginia-based mortgage finance company began keeping records 37 years ago. Less Bearish Rates were about 2.11 percentage points more than 10-year Treasury yields, narrowing from 3.07 percentage points in December. The spread averaged 1.86 percentage points over the last decade. A survey by Ried, Thunberg & Co. shows fund managers became less bearish on Treasuries. For the seven days ended March 27, the company’s index measuring investors’ outlook through the end of June rose to match this year’s high of 46, from 43 the week before. The economic analysis firm in Jersey City surveyed 24 investors controlling $1.35 trillion.

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