Treasuries fell, snapping a three- day gain, before government reports today that economists said will show consumer spending and orders for durable goods in the U.S. rose last month. The pace of growth is strong enough to spur demand for so- called risk assets, or those that offer higher yields than Treasuries, said Tony Crescenzi at Pacific Investment Management Co., which runs the world’s biggest bond fund. The U.S. is scheduled to sell $29 billion of seven-year securities today, the last of three auctions this week totaling $99 billion. “The U.S. economy continues to recover, and that’s bad news for the Treasury market,” said Hiroki Shimazu, a Tokyo- based economist at Nikko Cordial Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc., Japan’s third-largest publicly traded bank by assets. “Inflation and yields will go higher.” Ten-year rates rose two basis points to 2.80 percent as of 6:18 a.m. in London, according to BGCantor Market Data. The price of the 2.625 percent security due in November 2020 declined 5/32, or $1.56 per $1,000 face amount, to 98 17/32. Yields will climb to 3 percent by year-end, Shimazu said. Household purchases in October rose 0.5 percent after a 0.2 percent gain a month earlier, according to the median estimate of 77 economists surveyed by Bloomberg News. A separate report today will show bookings for durable goods excluding cars and aircraft climbed 0.6 percent, another survey showed. ‘Muddle Through’ “Even if robust growth is not in the cards, the U.S. economy in 2011 looks set to at least muddle through,” Crescenzi, a portfolio manager at Pimco, wrote in an e-mail yesterday. The outlook “is a positive for risk assets,” wrote Crescenzi, who is based in Newport Beach, California. Treasuries have returned 7.9 percent this year, versus 11 percent for American corporate bonds, based on Bank of America Merrill Lynch indexes. The economy grew at a 2.5 percent pace in the third quarter, the Commerce Department said yesterday, more than its estimate a month ago of 2 percent and 1.7 percent in the prior three months. U.S. government securities still offer a haven to investors seeking safety, and they rose as recently as yesterday on speculation a financial crisis in Ireland will spread and as North and South Korea exchanged artillery fire. Ireland had its long-term sovereign rating cut two steps to A from AA- by Standard & Poor’s, which cited concern about borrowing by the government as the nation seeks aid from the International Monetary Fund and European Union. Forecasts Increased BNP, one of the 18 primary dealers that trade directly with the Federal Reserve, last week increased its end-March forecast for 10-year yields to 2.4 percent from 2 percent. A Bloomberg survey of banks and securities companies projects the figure will be 2.63 percent, with the most recent forecasts given the heaviest weightings. Today’s data will include the Fed’s preferred price measure, the Commerce Department’s year-on-year cost index tied to spending patterns and excluding food and fuel. The figure slowed to 1 percent in October from September’s 1.2 percent, the Bloomberg surveys show. That would be a record low based on data that began in 1960. Wal-Mart Stores Inc., the world’s largest retailer, said on Nov. 22 it will match the prices advertised by competitors for Black Friday, the day after Thanksgiving. To counter the slowdown in inflation, the Fed announced this month that it plans to pump $600 billion into the economy through June. Wider Spread 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, has widened to 2.09 percentage points from this year’s low of 1.47 percentage points in August. The latest figure matches the five- year average. The seven-year notes being sold today yielded 2.14 percent in pre-auction trading, rising from 1.97 percent at the previous sale of the securities on Oct. 28. Investors bid for 3.06 times the amount offered last month, compared with an average of 2.90 for the past 10 auctions. Indirect bidders purchased 50.2 percent of the securities, versus the 10-sale average of 49.4 percent. A $35 billion five-year auction yesterday attracted bids for 2.65 times the amount available, the lowest since June. Indirect bidders bought 31.5 percent of the notes, versus the average of 44.5 percent for the previous 10 sales. 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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