U.S. 30-year bonds surged and shorter-term notes fell after Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy faces a “slow slog,” leading investors to seek higher yields from longer debt. The Fed is scheduled to buy $6 billion to $8 billion of government securities today, targeting those due from November 2014 to April 2016, according to its website. The purchases are its first under a plan to scoop up $600 billion of government debt through June to keep borrowing costs down. Investors snapped up long bonds after the difference between five- and 30- year rates widened to a record 3.12 percentage points yesterday. “The yield on the 30-year bond has gotten a lot more attractive,” said Andy Cossor, Hong Kong-based chief market strategist for Asia at DZ Bank AG, Germany’s fifth-largest lender. “You’ve got very slow growth and you don’t have much inflation pressure.” Thirty-year rates declined 11 basis points to 4.22 percent as of 2:11 p.m. in Tokyo, according to data compiled by Bloomberg. The 4.25 percent security due in November 2040 gained 1 27/32, or $18.44 per $1,000 face amount, to 100 15/32. The yield climbed to 4.33 percent yesterday, the highest level since May 18. Five-year rates advanced two basis points today to 1.23 percent. Ten-year yields were little changed at 2.64 percent. “Our outlook has been one of slow slog versus rapid recovery,” Lockhart said yesterday in a speech about the labor market at an Atlanta Fed conference. GDP Growth The U.S. economy will grow at a 2.1 percent pace in the fourth quarter, based on a Bloomberg survey of 80 economists. The rate would be a pickup from 2 percent in the prior three months, though less than half of the 5 percent pace in the year- before period. Bond bulls including Hiromasa Nakamura at Mizuho Asset Management Co. say the U.S. faces deflation, or falling prices in the economy, which will benefit those securities with the longest maturities. “We accumulated in the middle of this week” by buying 10- and 20-year debt, said Nakamura, a senior investor in Tokyo at the unit of Mizuho Financial Group Inc., Japan’s second-largest bank by assets. “U.S. consumer spending will decline due to the high unemployment rate and low earnings,” said Nakumura, who helps oversee the equivalent of $36.4 billion. Jobless Rate The U.S. jobless rate has been above 9 percent since April 2009. Average hourly earnings increased 1.7 percent in October from a year earlier, slowing from 2.3 percent in October 2009, according to the Labor Department. The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities, was 2.12 percentage points. The five-year average is 2.09 percentage points. Investors betting the Fed will be successful in spurring growth sent Treasuries down this month and last. U.S. government securities lost 0.2 percent in October and 0.3 percent in November, according to Bank of America Merrill Lynch indexes. Two-year yields rose to 0.45 percent today from the record low of 0.31 percent on Nov. 4. They were 20 basis points more than the upper end of the Fed’s target range for overnight loans between banks, the most in seven weeks. ‘Rally Is Over’ “The rally is over” in Treasuries, said Takuya Yamamoto, who helps oversee $101 billion as a portfolio manager in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co., Japan’s second-largest life insurer. “It will take a long time but the U.S. economy will improve.” Diam trimmed its Treasury holdings in October, Yamamoto said. The Thomson Reuters/University of Michigan preliminary sentiment index scheduled for released today advanced to 69 this month from 67.7 in October, according to the median projection in a Bloomberg News survey. That would be the highest since June. Fed buying doesn’t automatically translate into Treasury gains. U.S. government debt handed investors a 3.72 percent loss last year, according to the Bank of America indexes, as the central bank snapped up $300 billion of the securities. It was the first decline since 1999. The strategy is called quantitative easing because it aims to increase the quantity of money in the economy.http://www.bloomberg.com/news/2010-11-12/treasuries-decline-before-report-that-may-show-consumer-confidence-rose.html To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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