By Wes Goodman March 30 (Bloomberg) -- Treasuries headed for a quarterly gain before an industry report that economists said will show U.S. home prices fell in January, indicating the source of the global financial crisis has yet to recover. Notes snapped yesterday’s decline on speculation a relapse in the U.S. real estate market will cut short the economic recovery. Demand for the relative safety of U.S. government debt pushed Treasuries to a 0.9 percent return since the end of 2009, rebounding from a 3.7 percent loss last year, according to indexes compiled by Bank of America Corp. “Yields will go down,” said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities Capital Markets Co., a unit of Japan’s second-largest brokerage. “The employment situation is not good. People cannot afford to buy homes.” The 10-year note yielded 3.86 percent as of 6:51 a.m. in London, according to BGCantor Market Data. The 3.625 percent security due February 2020 traded at 98 1/32. Yields will fall to 3.30 percent by mid-year, Nagai said. German government bonds returned 2.5 percent this year, the Bank of America figures show, as investors bought bunds to seek safety while Greece struggled to curb the European Union’s largest budget deficit. U.K. gilts returned 1 percent, and Japan’s bonds were little changed, according to the indexes. Property Values The financial crisis that started with the collapse of the U.S. property market in 2007, sent the global economy into its first recession since World War II. The S&P/Case-Shiller index of property values in 20 cities dropped 0.3 percent in January from a month earlier on a seasonally adjusted basis, based on a Bloomberg News survey of economists before today’s report. A gauge of consumer confidence this month recouped less than half of the 10.5-point drop in February, a report from the Conference Board may show. Treasuries fell 1 percent March as some analysts said the U.S. is about to start adding jobs. “The economy is getting stronger,” Treasury Secretary Timothy F. Geithner said yesterday in an interview on CNBC. “We’re probably just on the verge now of what we think will be a sustained period of job creation finally.” Jobs Report A Labor Department report this week will show the U.S. added 184,000 workers in March, the most in three years, a Bloomberg survey shows. The unemployment rate will hold at 9.7 percent, near the 26-year high of 10.1 percent in October. The Treasury is scheduled to announce on April 1 the sizes of three note sales and one bond auction scheduled for next week as President Barack Obama borrows record amounts to sustain the nation’s recovery. “Long-term bond yields are going higher and higher,” said Jaemin Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and mid-sized companies. “The economic situation will improve, and the budget deficit is getting worse.” Ten-year yields climbed to 3.92 percent on March 25, the highest since June 11. They will rise to 4 percent by the middle of the year, Cheong said, adding he’s avoiding Treasuries. The budget deficit, which rose to $1.4 trillion in fiscal 2009, will drive Treasury sales to a record $2.43 trillion this year, a February survey of bond-trading companies showed. ‘Higher Rates’ Treasuries fell yesterday as stocks rose and U.S. consumer spending increased. “The markets seem poised for higher rates,” Kevin Giddis, head of fixed-income sales, trading and research at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients. “While we may see more rallies from event risk, the continued size of Treasury financings and improved economic conditions will likely lead us to higher yields.” Consumer spending gained in February for a fifth month, advancing 0.3 percent, the Commerce Department reported. Riskier assets got a boost as Greece, the European Union’s most indebted member, sold 5 billion euros ($6.7 billion) of seven-year bonds after European leaders agreed last week on an aid plan for the debt-stricken nation. The Standard & Poor’s 500 Index increased 0.6 percent in New York, rising for a second day. The MSCI Asia Pacific Index of shares rose 1 percent today, its third gain. Signs of improvement in the economy are leading Shin Kong Life Insurance Co. in Taipei to favor high-grade corporate and mortgage-backed bonds over Treasuries, said Melissa Su, who oversees the company’s U.S. debt holdings. Bank of America’s index of U.S. corporate bonds returned 0.7 percent this month. The index yield is 2.53 percentage points more than Treasuries, with the so-called spread narrowing from 7.96 percentage points a year ago. “We are focusing most of our investments on spread products to maximize our yield,” said Su at Shin Kong, which has the equivalent of $44 billion in assets. Treasury rates are “very low,” she said. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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