Treasuries broke even in March, underperforming the Standard & Poor’s 500 Index for a fifth month, as Federal Reserve efforts to spur the economy increased demand for higher-yielding assets. U.S. government securities returned 0.2 percent after accounting for interest payments as of yesterday, based on Bank of America Merrill Lynch data. The S&P 500 (SPX) returned 3.3 percent including dividends, according to data compiled by Bloomberg. Consumer spending probably climbed by the most since September, economists forecast before a report tomorrow. The Fed is buying $85 billion of Treasury and mortgage debt a month to put downward pressure on borrowing costs. “The U.S. economic recovery is on track, but it’s not great,� said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 21 primary dealers that underwrite the U.S. debt. “The Fed is not going to stop its purchases any time soon. That should benefit stocks and bonds, too.� Benchmark 10-year yields were little changed today at 1.85 percent as of 6:36 a.m. in London, according to Bloomberg Bond Trader prices. The rate is within half a percentage point of the record low of 1.38 percent set in July. The price of the 2 percent note due in February 2023 was 101 11/32. Japan’s 10-year rate slid 1/2 basis point to 0.51 percent, extending its decline to the lowest levels in almost a decade. A basis point is 0.01 percentage point. For the first quarter, Treasuries declined 0.2 percent, and Japanese bonds surged 2.3 percent, the Bank of America data show. The S&P 500 returned 10 percent. Treasury Auctions The U.S. is scheduled to sell $29 billion of seven-year debt today in the last of three note sales this week. At the previous auction on Feb. 27, investors bid for 2.65 times the amount of debt available, versus the average of 2.68 for the past 10 sales of this maturity. Demand declined at a five-year offering yesterday and a two-year auction on May 26, which were both for $35 billion. Personal spending rose 0.6 percent last month, after advancing 0.2 percent in January, according to a Bloomberg News survey before the Commerce Department report tomorrow. The U.S. jobless rate fell to a four-year low of 7.7 percent, the Labor Department reported this month. Initial claims for jobless insurance probably rose to 340,000 in the seven days ended March 23 from 336,000 the week before, based on responses from economists ahead of the Labor Department figures today. The Commerce Department will probably increase its estimate for economic growth in the last quarter of 2012 today to 0.5 percent from 0.1 percent it reported a month ago, according to the surveys. Growth Signs Treasury traders have become accustomed to signs of growth, said Ali Jalai, who trades U.S. bonds in Singapore at Scotiabank, a unit of Bank of Nova Scotia (BNS), one of the 21 primary dealers that underwrite the U.S. debt. “You need another level of improvement in the economy for yields to back up,� said Jalai, who correctly predicted in early February that the 10-year rate would decline to 1.85 percent by the close of March. Jobless claims need to fall to about 300,000 to push 10- year yields up to 2 percent, he said. Treasuries rallied yesterday as investors sought refuge amid speculation that political deadlock in Italy and reverberations from Cyprus’s bailout will intensify Europe’s sovereign-debt crisis. Treasuries are scheduled to close at 2 p.m. New York time and stay shut worldwide tomorrow for Good Friday, according to the New-York based Securities Industry and Financial Markets Association’s website. ‘Marvelous’ Job Stocks gains are evidence that Fed Chairman Ben S. Bernanke has done a “marvelous� job of increasing asset prices and heading off deflation in the U.S., said Stephen Smith, who helps oversee $45 billion as a portfolio manager at Brandywine Global Investment Management LLC in Philadelphia. The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.52 percentage points. The average over the past decade is 2.20 percentage points. Brandywine has been reducing bond duration in the U.S., Germany, France and the U.K. over the past few years, Smith said yesterday on Bloomberg Radio’s “Taking Stock� with Pimm Fox and Vonnie Quinn. It’s investing in higher-yielding debt in Italy and Portugal, he said. Duration is a measure of a bond price’s sensitivity to changes in yield, and investors cut duration to protect the value of their holdings in case rates rise. 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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