Treasuries rose, pushing yields toward the lowest levels this year, as signs economic growth is slowing increased demand for the relative safety of U.S. debt. Notes added to their best first half in 15 years before a private report that analysts said will show the expansion in U.S. service industries, the largest part of the economy, slowed in June. The U.S. lost jobs last month for the first time this year, data showed on July 2. Any declines in bond prices are a buying opportunity, Deutsche Bank AG said in a report. “Treasuries are opening up a little stronger relative to last week,” said David Keeble, head of fixed-income strategy at Credit Agricole Corporate & Investment Bank in London. “There’s still concern over economic slowdown after the payrolls data.” Ten-year yields, a benchmark for mortgage rates and company borrowing costs, fell four basis points to 2.94 percent as of 7:44 a.m. in London, according to BGCantor Market Data. The 3.5 percent security due in May 2020 rose 11/32, or $3.44 per $1,000 face amount, to 104 25/32. The yield declined to 2.8793 percent on July 1, the least since April 2009. Treasuries returned 5.9 percent in the first half of 2010, the most since 1995, according to Bank of America Merrill Lynch indexes. Investors snapped up U.S. bonds as European efforts to cut government spending sent stocks plunging. Stock Losses The MSCI World Index of shares has fallen 11 percent this year. The index gained 0.3 percent today. The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which make up about 90 percent of the economy, fell to 55 from 55.4 in May, according to a Bloomberg News survey before the report today. Readings above 50 signal expansion. Payrolls dropped by 125,000 in June, the Labor Department said last week. “We remain bullish on bonds,” Deutsche Bank analysts including Dominic Konstam in New York wrote in a July 2 report. “Any setbacks will be short lived and shallow and should be used as buying opportunities. Deflation risks from Europe remain the primary driver for lower yields.” The company is one of the 18 primary dealers that are required to bid at the government’s debt sales. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, narrowed to 1.80 percentage points from this year’s high of 2.49 percentage points set in January. No Recession U.S. government bond yields are signaling almost no chance of the economy slipping into another recession, according to research from the Federal Reserve Bank of Cleveland. The 2.33 percentage point spread between yields on two-year and 10-year Treasuries is more than double the 20-year average and about the same as in 2003, just before gross domestic product rose 3.6 percent. The so-called yield curve suggests growth won’t slow to less than 1 percent and about a 12 percent chance of a recession in the next year, Joseph G. Haubrich, head of the banking and financial institutions group at the Cleveland Fed, and Kent Cherny, a researcher, wrote in a July 1 report. “We could get a sharper move to higher yields once growth dynamics take hold,” James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, said in a July 2 interview on Bloomberg Television. Morgan Stanley is another primary dealer. ‘Too Low’ The decline in Treasury yields has made the securities unattractive to some investors. “Rates are too low,” said Kazuhito Miyabe, who helps oversee $12 billion as head of foreign fixed income in Tokyo at Toyota Asset Management Co., a unit of the world’s largest automaker. “If we buy, it’ll be in Australia.” Ten-year notes in the nation yield 5.04 percent. Australia’s central bank kept interest rates unchanged today for a second meeting. Policy makers led by Governor Glenn Stevens left the target for overnight loans at 4.5 percent, the Reserve Bank of Australia said in a statement in Sydney. Investors in a weekly survey by Ried Thunberg ICAP, a unit of ICAP Plc, the world’s largest inter-dealer broker, became more bearish on U.S. debt. The firm’s index on the outlook for Treasuries through December fell to 40 as of July 2, matching the lowest reading of the year, from 44 a week earlier. A figure less than 50 shows investors expect prices to fall. The company, based in Jersey City, New Jersey, said it surveyed 26 fund managers overseeing $1.38 trillion. U.S. job losses will keep inflation in check, Jan Hatzius, chief U.S. economist for Goldman Sachs Group Inc. in New York, wrote in a note to clients. “The weak labor market implies not only a great deal of hardship for workers, but also a growing risk of deflation,” Hatzius wrote. “Long-term bond yields are low and falling,” according to Goldman, also a primary dealer. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

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