Treasuries rose, snapping the biggest two-day decline in almost two years, after Federal Reserve Bank of New York President William Dudley said the central bank’s bond purchases won’t cause an inflation problem. Government securities also gained as economists said a U.S. report due tomorrow will show consumer price-increases are slowing. Benchmark 10-year yields jumped 31 basis points during the previous two trading days, the most since a back-to-back surge of 33 basis points in January 2009. A report showed producer prices in the U.S. rose less than forecast in October. “We got verbal intervention and suggestions that the Fed will be supported,” said David Ader, head of government bond strategy at Stamford, Connecticut-based CRT Capital Group LLC. “That inspired a bit of confidence in the market. When 10-year notes floated close to 3 percent, people said ‘enough is enough’ and buying came in.” Yields on 10-year notes fell eight basis points to 2.88 percent as of 8:33 a.m. in New York, according to data compiled by Bloomberg. The 2.625 percent security due in November 2020 advanced 21/32, or $6.56 per $1,000 face amount, to 97 25/32. Dudley was responding to criticism that the Fed’s plan to add $600 billion to the economy by buying Treasuries will lead to higher prices for consumers. “People do not understand clearly” that “we can have an enlarged balance sheet and not have a long-term inflation problem,” he said in an interview with CNBC. Fed Buying The central bank is scheduled to purchase $4 billion to $6 billion of securities maturing from May 2012 to May 2013 today under the program, according to its website. The producer price index climbed 0.4 percent from the prior month, Labor Department figures showed today in Washington. Economists projected a 0.8 percent rise in October, according to the median estimate in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy costs, decreased 0.6 percent, the most since July 2006. Separate data today will show industrial production and wholesale prices rose last month, Bloomberg surveys show. Treasuries tumbled yesterday as a group of analysts urged the Fed to halt bond purchases. John Taylor, the Stanford University professor who created a monetary-policy formula used by the Fed, was among the group of 23 who signed the open letter to central bank Chairman Ben S. Bernanke. Treasury losses after the analysts released their critique were “somewhat too sharp,” Barclays Capital’s Ajay Rajadhyaksha and Dean Maki in New York wrote in a report dated yesterday. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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