By Paul Dobson and 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. Demand for the relative safety of U.S. debt pushed Treasuries to a 0.9 percent return this year, rebounding from a 3.7 percent loss in 2009, according to Bank of America Corp. indexes. The securities fell 1 percent in March amid increasing confidence that economic growth is taking hold. Federal Reserve Bank of Chicago President Charles Evans said today the central bank’s commitment to keeping interest rates exceptionally low for an extended period is a guideline, not a hard rule. “The rebound has been slow and tentative,” said Charles Diebel, a senior interest-rate strategist at Nomura International Plc in London. “There’s a sense that with the improvement in macro data the support process is waning and people are being more cautious and trimming their holdings” of U.S. government securities, he said. The 10-year note yield fell 1 basis point to 3.86 percent as of 6:46 a.m. in New York, according to BGCantor Market Data. The 3.625 percent security due February 2020 climbed 2/32, or 63 cents per $1,000 face amount, to 98 2/32. The financial crisis triggered $1.76 trillion of writedowns and credit losses at banks and other institutions. The Fed and U.S. agencies have lent, spent or guaranteed $8.2 trillion up to the end of 2009 to unfreeze credit markets and lift the economy out of the recession, according to data compiled by Bloomberg. Target Rate The Fed has also kept the target interest rate for overnight loans in a range of zero to 0.25 percent since December 2008. Policy makers, charged with balancing the need for economic growth while keeping inflation in check, are facing a mixed picture of the speed of the recovery. 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 survey of 18 economists before today’s report. Consumer spending gained in February for a fifth month, advancing 0.3 percent, the Commerce Department reported yesterday. Evans, speaking today in Hong Kong, reiterated his view that the U.S. central bank is likely to maintain an “accommodative” interest-rate stance for at least six months to support the momentum of economic growth. His views contrast with those of officials such as Kansas City Fed president Thomas Hoenig, who favors abandoning the Fed’s pledge. ‘Financial Imbalances’ Hoenig, currently the longest-serving president of one of the Fed’s 12 district banks, warned that the expectation of exceptionally low levels of rates for an extended period “could lead to the buildup of financial imbalances,” the Fed said in its policy statement earlier this month. Interest-rate futures on the Chicago Board of Trade show a 47 percent chance U.S. policy makers will raise the benchmark target rate by at least 25 basis points by September, up from 32 percent a month ago. “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.” 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. Swap Spread The 10-year swap spread, which turned negative for the first time on March 23, widened to negative 5.4 basis points today from negative 4.9 basis points yesterday. A negative swap spread means the Treasury yield is higher than the swap rate, which typically is greater given that the floating payments are based on interest rates that contain credit risk, such as the London interbank offered rate. 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. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net

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