By Yasuhiko Seki Sept. 8 (Bloomberg) -- Treasuries gained for a second day before a report forecast to show the U.S. trade deficit narrowed as a slowing economy prompted Americans to buy fewer imports. The yield on the 10-year note extended declines from a one- month high as Asian shares extended a global slump amid concern Europe’s debt crisis will worsen. Treasuries also advanced as the cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment rose. The U.S. prepared to sell $21 billion of the securities today in the second of three debt auctions this week totaling $67 billion. “We don’t dare sell bonds,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest bank. “The outlook for the U.S. economy remains hazy.” The yield on the benchmark 10-year note fell two basis points to 2.58 percent at 6:30 a.m. in London, according to data compiled by Bloomberg. The yield slid 10 basis points yesterday. The price of the 2.625 percent security maturing in August 2020 rose 5/32, or $1.56 per $1,000 face amount, to 100 13/32. The extra yield investors demand to hold 10-year notes over 2-year debt fell for a second day on concern the global economy may be stalling. The spread slid to 2.09 percentage points after rising last week to 2.25 percentage points, the widest on an intraday basis since Aug. 11. Beige Book The gap between imports and exports decreased to $47 billion in July from $49.9 billion the prior month, according to a Bloomberg News survey economists ahead of the Commerce Department’s Sept. 9 report. Demand for overseas products may cool as American consumers and businesses curb spending in coming months. The Fed will release its survey of conditions in its 12 districts today before officials meet to review monetary policy on Sept. 21. The U.S. jobless rate is likely to approach 10 percent in coming months as the economy fails to grow enough to employ people rejoining the labor force, according to economists surveyed by Bloomberg. The MSCI Asia Pacific Index fell 1.1 percent today. The Standard & Poor’s 500 Index lost 1.2 percent yesterday and the dollar tumbled to a 15-year low after the Wall Street Journal reported that European stress tests of major banks understated some lenders’ holdings of risky government debt. “The fallout in euro sovereign debt certainly played into the flight-to-safety bid,” said Thomas L. di Galoma, head of U.S. rates trading in New York at Guggenheim Partners LLC, a brokerage for institutional investors. Debt Auction Gains in Treasuries were limited before debt sales. “Yields on U.S. notes have fallen to unsustainable levels as the market has over-priced prospects for a double-dip recession,” said Kazuto Uchida, chief economist at Bank of Tokyo Mitsubishi UFJ Ltd. in Tokyo, a unit of Japan’s largest bank. “Ten-year yields may climb back toward 3 percent.” The 10-year securities scheduled for sale yielded 2.60 percent in pre-auction trading, compared with 2.73 percent at the previous offering of the notes on Aug. 11. Investors bid for 3.04 times the amount of debt on offer last month. The average at the prior 10 auctions was 3.15. Indirect bidders, the group that includes foreign central banks, bought 45.8 percent of the debt, versus the ratio of 41.7 percent in July. Ten-year notes, among the most sensitive to inflation, are outperforming shorter-maturity debt as consumer price gains slow. The securities returned 13.2 percent this year, versus 8.2 percent for the broader market, according to Bank of America Merrill Lynch indexes. The government will sell $13 billion of 30-year bonds tomorrow. Default Swaps The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose three basis points to 125 basis points in Singapore, Royal Bank of Scotland Group Plc prices show. The Markit iTraxx Australia index added three basis points to 119.5 basis points in Sydney, according to BNP Paribas SA. The Markit iTraxx Japan index increased two basis points to 108 basis points in Tokyo, according to Morgan Stanley. A basis point is 0.01 percentage point. “The appetite for riskier assets is apparently weak now,” said Satoshi Okumoto, general manager in Tokyo at Fukoku Mutual Life Insurance Co., which oversees the equivalent of $65 billion in assets. “This will enhance a flight of capital into safer assets such as bonds.” Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement. To contact the reporters on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net

Source