Treasuries headed for their steepest weekly loss since May before the government sells debt worth $69 billion and as stock gains around the world showed reduced investor concern that the U.S. is slipping into a recession. The 10-year note yield was within two basis points of its highest level this month. The yield closed above 3 percent yesterday for the first time since June 28. The Treasury is scheduled to auction $35 billion of three-year notes on July 12, $21 billion of 10-year securities the following day and $13 billion of 30-year bonds on July 14. The MSCI World Index of shares rose 0.3 percent today for a 4.9 percent gain in the week, the most in almost a year. “There’s still a lot of refinancing to be done and that’s exerting upward pressure on Treasury yields,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “There appears to be concession-building ahead of next week’s auctions. It’s still a risk-on, risk-off environment and near-term direction will be driven by developments in equity markets.” The 10-year note yielded 3.04 percent as of 7:54 a.m. in London, according to BGCantor Market Data. The 3.5 percent security due May 2020 fell 1/32, or 31 cents per $1,000 face amount, to 103 29/32. The yield rose five basis points this week, the most since the period ended May 28. It dropped to 2.8793 on July 1, the lowest since April 2009. ‘Close to Zero’ Ten-year yields will advance to 3.54 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. “Long-term yields are going to rise,” said Geoff Howie, a senior vice president at MF Global Singapore Ltd., part of the world’s largest broker of exchange-traded futures and options. “Demand for riskier assets will come back. The chance of a double-dip recession is close to zero. It ain’t going to happen.” The International Monetary Fund on July 7 raised its forecast for worldwide growth this year to 4.6 percent, the most since 2007, versus an April projection of 4.2 percent. The world isn’t likely to experience a double-dip recession, Kenneth Rogoff, a Harvard University professor and former chief economist of the IMF, said in Singapore today. The Bank of Korea raised its benchmark interest rate today from a record low. The benchmark 10-year yield, which fell to less than 3 percent this month, can’t stay there without deflation, said Greg Peters, global head of fixed-income research at Morgan Stanley, one of the 18 primary dealers required to bid at the government debt sales. ‘Not Sustainable’ “It’s not sustainable -- unless you truly, truly believe in a deflation outcome,” Morgan Stanley’s Peters said yesterday in a radio interview with Tom Keene on “Bloomberg Surveillance.” Deflation is unlikely, according to New York-based Peters, who said the outlook resembles 1998’s economy, which “was questionable at some points” but continued to grow. Traders added to inflation bets by the most in six weeks yesterday. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, widened by eight basis points, the biggest increase since May 27. The spread has climbed to 1.81 percentage points from 1.68 percentage points on July 7, which was a nine-month low. Rally Over? Treasuries returned 5.9 percent in the first six months of 2010, the most since 1995, according to Bank of America Merrill Lynch indexes. Investors snapped up government debt on speculation efforts by European governments to cut spending would slow global economic growth. The MSCI World Index fell 11 percent in the period. It’s too early to say that the rally that sent Treasuries to their best first half in 15 years is finished, said Masataka Horii, one of four investors who run the Kokusai Global Sovereign Open Fund in Tokyo. It is Asia’s largest bond fund, with $38.5 billion in assets. Former Fed Chairman Alan Greenspan said yesterday on CNBC the U.S. economy may be undergoing a “pause,” and he can’t rule out the possibility of a so-called double-dip recession. “I’m not sure that the rally is over,” Horii said. “The Fed will try to make longer-term yields go lower because it is helpful for mortgage buyers. The Fed changed its forecast on inflation. Because of that, the market expects the Fed to keep its zero percent policy rate for a longer time.” The fund increased its holdings of U.S. debt to 28 percent of assets, more than its investments in euro- or yen-denominated bonds, from 18 percent at the start of 2010, Horii said. Mortgage Rates Fed forecasters lowered their outlook for inflation when they met in April, based on minutes of the session released May 19. The personal consumption expenditures price index minus food and energy will rise by a range of 0.9 percent to 1.2 percent this year, down from January’s estimates of 1.1 percent to 1.7 percent, according to the minutes. Mortgage rates for 30-year U.S. loans fell to the lowest on record for the third-straight week. The average rate declined to 4.57 percent in the week ended yesterday, the lowest since Freddie Mac began compiling the data in 1971, according to the mortgage-finance company. Policy makers cut their target for overnight bank lending to a range of zero to 0.25 percent in December 2008. 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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