U.S. 10-year Treasuries rose amid speculation the Federal Reserve will announce new debt purchases today to support economic growth. Two-year yields were near a record low as analysts said a private report will indicate service industries expanded in October at a pace that shows limited improvement. Thirty-year bonds held their biggest gain in four weeks as Republicans seized control of the U.S. House of Representatives in yesterday’s elections. The Treasury Department is scheduled to announce today how much it plans to raise in three-, 10- and 30- year auctions next week. “The market is more constructive, expecting the Fed will not disappoint,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “The focus is clearly on the statement regarding the quantitative easing announcement.” The yield on the 10-year note fell two basis points to 2.57 percent as of 8:31 a.m. in London, according to BGCantor Market Data. The 2.625 percent securities due in August 2020 rose 5/32, or $1.56 per $1,000 face amount, to 100 14/32. Two-year notes yielded 0.35 percent, compared with a record low of 0.327 percent set on Oct. 12. Thirty-year bonds yielded 3.91 percent. The yield fell seven basis points yesterday, the most since Oct. 6. Economists surveyed by Bloomberg said the U.S. central bank will announce plans to buy at least $500 billion of securities following a meeting today. ISM Report The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, rose to 53.5 last month from 53.2 in September, according to the median forecast of economists surveyed by Bloomberg News. Other reports today may show companies added jobs last month and factory orders increased. The Treasury will say it plans to auction $31 billion of three-year notes, $24 billion of 10-year notes and $16 billion of 30-year bonds, according to the median forecast of a Bloomberg News survey of 12 primary dealers. In August, the Treasury sold $34 billion of three-year debt, $24 billion of 10-year notes and $16 billion of 30-year bonds. The 18 primary dealers are required to bid at the government debt sales. President Barack Obama has increased the U.S. publicly traded debt to a record $8.5 trillion as he tries to sustain the nation’s economic expansion. Republicans gained House seats yesterday in pivotal races across the country, capitalizing on concerns about government spending and delivering a rebuke to the domestic agenda of Obama. Samsung Strategy Samsung Investment Trust Management Co., South Korea’s largest private fixed-income investor, switched out of long-term Treasuries in a bet the Fed’s easing plan will lead to faster inflation. Samsung is favoring notes due in five years and less, making the change in October, said Sungjin Park, who oversees the equivalent of $55.9 billion of debt as head of fixed income for the company in Seoul. Shorter maturities tend to track the central bank’s benchmark interest rate, which policy makers have pledged to keep near zero. “They will wait and wait again” to raise interest rates, Park said. “Short-term maturities are correlated with the policy rate. Maturities of more than 10 years would be vulnerable to inflation.” Policy makers cut their target for overnight loans between banks, known as the federal funds rate, to a range of zero to 0.25 percent in December 2008. Inflation Outlook U.S. yields indicate investors are adding to bets the Fed’s asset purchases, a strategy known as quantitative easing, will increase costs for goods and services. The spread between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for inflation over the life of the securities, widened to 2.19 percentage points from this year’s low of 1.47 points in August. Former Fed Chairman Paul Volcker, an adviser to Obama, signaled that some investors are concerned about the potential inflation risks of quantitative easing and record-low rates. “It does worry people” that “we’re going to create so much money that down the road we’ll create inflation,” Volcker said yesterday at a seminar in Singapore. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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