Treasuries declined, snapping a three-day gain, before a government report that economists said will show orders for durable goods rose and as the U.S. prepared to sell $35 billion of five-year notes. The losses pushed the 10-year yield up from the lowest in more than a month as stock-market gains reduced demand for fixed income as a haven. Federal Reserve Chairman Ben S. Bernanke is scheduled to speak to reporters at the conclusion of a policy meeting today, as the June end of the central bank’s second round of bond buying, known as quantitative easing or QE2, approaches. The Fed kept demand for Treasuries “deceptively” high through its program, Pacific Investment Management Co., which runs the world’s biggest bond fund, said in a report. “Overall, the improvement in the macro economic data is still intact,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “Fundamentally, you could argue that yields should move higher.” Ten-year rates rose three basis points to 3.34 percent as of 10:46 a.m. in London, according to Bloomberg Bond Trader prices. The 3.625 percent note maturing in February 2021 slid 8/32, or $2.50 per $1,000 face amount, to 102 11/32. The 10-year yield may increase to about 3.4 percent by the end of the year, Rousing said. Yields will advance to 3.91 percent by the end of December, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Durable Goods The MSCI Asia Pacific Index and the Stoxx Europe 600 Index both rose 0.3 percent. U.S. stock-index futures climbed, signaling the Standard & Poor’s 500 Index may add to yesterday’s gains, which pushed it to its highest level since June. U.S. bookings for equipment meant to last at least three years climbed 2.3 percent in March after a 0.6 percent decline the prior month, according to the median projection of economists surveyed by Bloomberg News. The Commerce Department is scheduled to release the figures at 8:30 a.m. in Washington. The five-year notes being sold today yielded 2.09 percent in pre-auction trading, falling from 2.26 percent at the prior sale of the securities on March 29. Investors bid for 2.79 times the amount offered last month, in line with the average for the past 10 auctions. Indirect bidders, the category of investors that includes foreign central banks, bought 42.4 percent of the notes, versus the 10-sale average of 41.1 percent. Bernanke Press Conference The Treasury issued $35 billion of two-year debt yesterday and will conclude this week’s auctions with $29 billion of seven-year notes tomorrow. Two-year yields fell yesterday to the lowest in more than a month. The Fed plans to release a statement at about 12:30 p.m. Washington time, and Bernanke is scheduled to speak to reporters at 2:15 p.m. The press conference will be the first in a series of four per year, each following a policy meeting, in an effort by the central bank to improve communications with the public. The central bank announced in November that it would buy $600 billion of Treasuries by the end of June to pump money into the economy and support the expansion. “The Fed has kept the demand for U.S. Treasuries high, perhaps deceptively so,” Tony Crescenzi, a market strategist and portfolio manager for Pimco in Newport Beach, California, wrote in a report yesterday on the company’s website. “Investors face the potential for capital losses for having bought into the Fed’s scheme at prices inflated by QE.” Volatility Falls Volatility has fallen to near a 13-month low, according to Bank of America Merrill Lynch’s Move index. The gauge, measuring price swings based on over-the-counter options maturing in two to 30 years, was at 81.30 yesterday, after declining the previous day to 74.80, the lowest level since March 17, 2010. Treasuries have made investors 0.9 percent this month, pushing their gain since the end of 2010 to 0.8 percent, according to the Merrill Lynch U.S. Treasury Master Index. German bunds made 0.6 percent this month. The central bank purchases also promote inflation, which will erode bonds’ value, Crescenzi wrote. 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, has widened to 2.60 percentage points from 2.16 percentage points six months ago. The 10-year average is 2.10 percentage points. Japan Rating The central bank will leave its target interest rate for overnight lending between banks at zero to 0.25 percent, according to all 83 economists in a Bloomberg News survey. The Fed has held the rate at that level since December 2008. Japan’s 10-year yield was little changed after the nation’s sovereign-rating outlook was cut to “negative” by Standard & Poor’s, which said the nation’s reconstruction needs following last month’s earthquake will likely add to what’s already the world’s biggest debt. The ratings company lowered Japan in January to AA-, its fourth-highest level. S&P on April 18 placed a negative outlook on the U.S.’s AAA ranking, citing a risk the nation will fail to deal with rising budget deficits. To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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