Treasuries rose, pushing 10-year yields down from the highest in almost two weeks, before Federal Reserve data that may show the U.S. recovery is slowing, fueling the haven appeal of government securities. U.S. bonds also gained as data showed durable-goods orders unexpectedly fell in June. The yield on five-year securities slipped before a sale of $37 billion of the debt today, the second of three note auctions this week totaling $104 billion. Gains were tempered by company earnings that exceeded analyst estimates and damped demand for the safest fixed-income assets. “People are most concerned about growth expectations,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “It won’t be much of a surprise from what we heard from Bernanke. Some still think there could be a small downturn and that could be a valid reason to keep rates lower.” The benchmark 10-year yield decreased 2 basis points, or 0.02 percentage point, to 3.03 percent at 8:46 a.m. in New York, according to BGCantor Market Data. Earlier it touched 3.05 percent, the highest level since July 15. The five-year yield fell 2 basis points to 1.77 percent. Orders for durable goods declined 1 percent last month, after a revised 0.8 percent slide in May, a Commerce Department report showed. The median forecast in a Bloomberg survey of 76 economists was for a 1 percent increase. Today’s Fed report, the so-called Beige Book regional survey, discusses economic conditions as reported by the central bank’s 12 district banks. Fed Chairman Ben S. Bernanke said July 21 “the economic outlook remains unusually uncertain.” Last month’s survey showed the U.S. economy strengthened in all 12 regions in April and May, while also noting that growth in many was subdued. ‘Low Level’ “The Beige Book is likely to confirm that the economic momentum slackened again at the end of the second quarter and also at the start of the third quarter,” fixed-income analysts at WestLB AG in Dusseldorf including Michael Leister wrote in an investor note today. “Inflation probably remained modest which allows the Fed to maintain the fed funds rate at the low level for an extended period. U.S. gross domestic product growth slowed to 2.5 percent in the second quarter, versus 2.7 percent in the previous three months, according to the median estimate of 80 economists in a Bloomberg survey before the government reports the figure on July 30. London & Capital Group Holdings Plc, a U.K. fund manager, bought more U.S., German and British debt in the past six weeks, betting the nations’ efforts to control deficits will hamper growth and keep interest rates low. ‘Constructive Outlook’ “We have a constructive outlook on government bonds because of the low growth, low inflation and low interest-rate outlook,” Sanjay Joshi, who oversees about $500 million as a portfolio manager at the London-based company, said in an interview. “We increased our allocation of government bonds including five-year Treasuries, bunds and gilts.” Futures on the CME Group Inc. exchange show traders have reduced the chance to 42 percent that policy makers will raise their target lending rate for overnight bank loans by April from 54 percent odds a month ago. Policy makers cut the target to a range of zero to 0.25 percent in December 2008 to foster economic growth. The five-year Treasury notes being sold today yielded 1.813 percent in pre-auction trading, dropping from 1.995 percent at the previous sale on June 23. Investors bid for 2.58 times the amount on offer last month, less than the average of 2.66 for the past 10 auctions. Indirect bidders, the category of investors that includes foreign central banks, bought 34.6 percent of the notes, versus the 10-sale average of 46.2 percent. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net

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