U.S. 30-year Treasuries rose for a second day as investors sought the relative safety of U.S. government securities as Italy prepares to auction debt today and tomorrow. Thirty-year bonds have returned 32 percent this year and Treasuries of all maturities have handed investors a total gain of 9 percent, according to Bank of America Merrill Lynch indexes, on Europe’s deepening debt crisis. Italy is scheduled to auction as much as 20 billion euros ($26.1 billion) of debt today and tomorrow. “We haven’t seen any resolution from the European area, and the situation is going to be the same next year,� said Chungkeun Oh, a debt trader in Seoul at Industrial Bank of Korea, South Korea’s largest lender to small- and medium-sized companies. “Buying on dips� is the best strategy, he said. Thirty-year yields fell two basis points, or 0.02 percentage point, to 3.02 percent at 7:20 a.m. in London, according to Bloomberg Bond Trader prices. The 3.125 percent bond due in November 2041 rose 9/32, or $2.81 per $1,000 face amount, to 102 3/32. The rate slid three basis points yesterday. Ten-year yields fell one basis point to 2 percent. They declined to a record 1.67 percent on Sept. 23. Treasury Outlook This year’s rally in Treasuries is coming to an end, based on analyst forecasts. The 10-year yield will climb to 2.67 percent by the close of 2012, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. “The flight to quality will calm down,� said Tsutomu Komiya, a bond investor in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $119 billion. “The U.S. economy is resilient.� Ten-year yields will end 2012 at 3 percent, he said. The Conference Board’s index of consumer confidence increased to 64.5 this month, the highest level since April, from a revised 55.2 in November, the New York-based research group said yesterday. Citigroup Inc.’s Macro Risk Index, which gauges volatility levels and investor demand for higher-yielding assets, fell to 0.747 at the end of last week, the lowest level since August. Yields are poised to rise as employment picks up, said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston. The company is an arm of State Street Corp., which has $1.9 trillion under management. Best Performers “If we get investors rotating out of Treasuries, out of the safe haven, and rotating in the first few months of the year into emerging markets, then 10-year yields are probably going to be pushed up,� Herrmann said on Bloomberg Television’s “Street Smart� with Adam Johnson. “I’m not so sure we’re going to push them up to two and three quarters. We may just get up to two and a half percent.� The Federal Reserve is replacing $400 billion of shorter- maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and foster economic growth, in a plan it announced in September. Then central bank is scheduled to sell as much as $8.75 billion of securities due from April 2014 to November 2014 today as part of the program, according to the New York Fed’s website. Best Assets Treasuries were some of the best assets to own in 2011, according to the Bank of America indexes, even after Standard & Poor’s stripped the U.S. of its AAA credit rating on Aug. 5. Government securities have rallied the most since 2008 when credit markets froze and the U.S. was in the worst financial crisis since the Great Depression. Treasury Inflation Protected Securities returned almost 14 percent, the most since 2002, the Bank of America figures show. An index (DXY) of bonds around the world handed investors a 5.5 percent gain, based on the data. 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, was 2.05 percentage points. The average over the past decade is 2.13 percentage points. Two years of summits have failed to contain the European debt crisis that has led to bailouts of Greece, Ireland and Portugal and threatens Italy and Spain. The MSCI All Country World Index of stocks lost 6.8 percent this year after accounting for reinvested dividends. The Dollar Index tracking the U.S. currency against six foreign-exchange counterparts rose 1.1 percent in 2011. The Standard & Poor’s GSCI Total Return Index of commodities was little changed. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net To contact the editor responsible for this story: Naoto Hosoda at nhosoda@bloomberg.net

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