Treasuries declined for a second day before a private report that economists said will show service industries, the largest part of the economy, expanded for a 15th straight month. An index of U.S. debt due in more than a year has fallen 1.2 percent in the past three months, according to data compiled by the Federation of Financial Analysts Societies and Bloomberg. Only Portugal’s bonds have lost more, after accounting for currency changes, among 26 bond markets around the world. The Treasury will announce today the amount of 3-, 10- and 30-year debt it will auction next week. “Yields should rise,” said Satoshi Okumoto, who helps oversee the equivalent of $67.1 billion as a general manager at Fukoku Mutual Life Insurance Co. in Tokyo. “The U.S. economy is on a very good recovery track.” The benchmark 10-year yield increased two basis points to 3.49 percent as of 6:55 a.m. in London, according to BGCantor Market Data. The 3.625 percent security due in February 2021 declined 5/32, or $1.56 per $1,000 face amount, to 101 1/8. The rate will advance to 3.75 percent by year-end, Okumoto said. A Bloomberg survey of banks and securities companies projects it will climb to 3.92 percent. Services Expand The Institute for Supply Management’s non-manufacturing gauge was 59.3 last month, after a 59.4 reading in January that was the highest since 2005, according to a Bloomberg News survey. Figures above 50 signal expansion. A separate report today will show fewer than 400,000 workers filed claims for jobless benefits for the third time in four weeks, another survey showed. Treasuries also slid as Asia stocks gained and a television station reported the Arab League is studying a plan to end violence in Libya, helping curb demand for the relative safety of government debt. The MSCI Asia Pacific Index of shares rose 0.7 percent. The Arab League is reviewing a proposal from Venezuelan President Hugo Chavez, Al Arabiya Television reported, citing the league’s secretary general. Libyan leader Muammar Qaddafi’s warplanes bombed rebels and opposition leaders appealed for airstrikes against regime mercenaries. The U.S. will probably sell $32 billion of 3-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds next week, according to a report yesterday by RBC Capital Markets LLC, one of the 20 primary dealers that trade directly with the Fed. President Barack Obama has increased the U.S. publicly traded debt to a record $8.97 trillion as he spends to sustain the economic expansion. Fed Buying The Federal Reserve is scheduled to buy $6 billion to $8 billion of Treasuries due from May 2018 to February 2021 today as part of its own plan to spur growth, according to its website. Chairman Ben S. Bernanke yesterday didn’t rule out expanding the central bank’s asset purchases aimed at stimulating the economy, saying he doesn’t want to see the U.S. relapse into a recession. Bernanke’s comments bolstered speculation he will complete $600 billion of Treasury purchases through June, a policy known as quantitative easing, and keep the Fed’s benchmark interest rate near zero. “If yields rise, you have to buy,” said Hideo Shimomura, who helps oversee the equivalent of $73.3 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest bank. “There may be more quantitative easing” in the second half of the year, he said. `Rising Anxiety’ Fed efforts to spur the economy and rising oil prices are leading to concern among investors that inflation will quicken. Fed Bank of Atlanta President Dennis Lockhart said increasing commodity prices are creating concern. “There is clearly rising inflation anxiety focused on particular price categories,” Lockhart said in a speech in Atlanta yesterday. “I would expect inflation to continue to firm but not leap out of control.” It would be “wise” to complete the $600 billion of asset purchases, he said. 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 debt, increased to 2.49 percentage points, the widest in 13 months. Crude oil for April delivery rose as much as 0.7 percent today to $102.94 a barrel. Treasuries fell yesterday after ADP Employer Services said companies in the U.S. added 217,000 workers in February, more than economists forecast. A Labor Department report tomorrow will show employers hired 195,000 staff last month, up from 36,000 in January, according to another Bloomberg survey. “There is an increasing conviction that the economy is gaining its sea legs, so the bond market is taking a much more defensive posture,” said Edward Lashinski, macro investment strategist at ABN Amro Clearing LLC in Chicago. “We should see decent employment gains on Friday.” -With assistance from Cordell Eddings and Liz Capo McCormick in New York. Editors: Nicholas Reynolds, Nate Hosoda 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.

Source