Treasury 30-year bonds rose before the acquisition of as much as $2.5 billion of the debt by the Federal Reserve as part of its plan to accelerate economic growth and avoid deflation. Thirty-year bonds outperformed 10-year securities for the second week as the Fed gets set to acquire debt maturing from August 2028 to November 2040, the first purchases of longer- dated Treasuries in the round of quantitative easing launched Nov. 12. The U.S. unemployment rate of 9.6 percent is “high and, given the slow pace of economic growth, likely to remain so for some time,” Fed Chairman Ben S. Bernanke said in Frankfurt today. “It’s the latest installment of the defense of QE2 that we’ve seen,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The longer end is being supported by the looming buyback in the sector. The market is in a choppy range.” Thirty-year yields fell three basis points to 4.26 percent at 8:52 a.m. in New York, according to BGCantor Market Data. The 4.25 percent security due in November 2040 rose 15/32, or $4.69 per $1,000 face amount, to 99 30/32. Note Stop Ten-year note yields rose one basis point to 2.89 percent. They climbed to 2.96 percent on Nov. 16, the highest in three months. The “next stop” for 10-year yields is the 3.02 percent to 3.06 percent support zone, Bill O’Donnell, U.S. government bond strategist in Stamford, Connecticut, at Royal Bank of Scotland Plc’s RBS Securities unit, wrote in a note to clients. “Higher rates still lie ahead. The sell-off is not yet over.” The central bank is scheduled to buy $1.5 billion to $2.5 billion of government debt maturing from August 2028 to November 2040 today as part of its plan. In a speech in Frankfurt, Bernanke said the best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States.” Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he said. The Fed chief is confronting criticism from officials in countries including China and Brazil who say the Nov. 3 decision to buy $600 billion in Treasury securities has weakened the dollar and contributed to flows of capital to emerging markets. ‘Sticking With QE2’ “He’s trying to give the indication he’ll be sticking with QE2 for quite a while,” said Theodore Ake, head of Treasury trading at Societe Generale in New York. “People seem to be believe it, which gives us these rallies, but there are still plenty of sellers out there. It will remain volatile.” U.S. consumer prices excluding food and fuel increased by 0.6 percent in October from a year earlier, the smallest gain since records began in 1958, the Labor Department said Nov. 17. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities, was at 2.12 percentage points today. It was as high as 2.49 percentage points in January and has averaged 2.08 percentage points during the past 12 months. The Treasury will sell $35 billion of two-year notes, $35 billion in five-year debt and $29 billion of seven-year securities during three days starting Nov. 22, matching results of a Bloomberg News survey of primary dealers. The $99 billion total is unchanged from the amount of the October sales of the securities. President Barack Obama has increased U.S. marketable debt to a record $8.54 trillion. In an investor survey by Citigroup Inc., 40 percent of respondents expected the 10-year yield to be between 2.5 percent and 2.75 percent at year-end. Most of the rest expected the figure to be more than 2.75 percent, according to Citigroup, which is one of the 18 primary dealers required to bid at the government’s debt sales. To contact the reporter 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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