Treasuries fell, with 10-year notes headed for the biggest weekly loss in seven months, amid concern that debt sales will increase as the government boosts spending to ease the deepening economic slump. Ten-year yields held near a six-week high as U.S. sovereign credit risk climbed to a record on speculation President Barack Obama’s administration will join governments around the world in selling record amounts of bonds to rescue banking systems and battle a global recession. Goldman Sachs Group Inc. yesterday raised its 2009 Treasury borrowing estimate to $2.5 trillion. “Supply is a concern for this year,” said Michael Pond, interest-rate strategist at Barclays Capital Inc. in New York, one of 17 primary dealers required to bid at government debt auctions. “We are approaching the refunding period where we will get long-dated issuance, so its not surprising that it is weighing on investors’ minds.” Benchmark 10-year yields, used to set corporate borrowing costs and mortgage rates, increased six basis points, or 0.06 percentage point, to 2.66 percent at 9:41 a.m. in New York, according to BGCantor Market Data. The yields rose 33 basis points this week. The price of the 3.75 percent security maturing in November 2018 fell 18/32, or $5.63 per $1,000 face amount, to 109 11/32. The two-year note yield was up four basis points to 0.78 percent. The 30-year bond yield climbed eight basis points to 3.34 percent, the first time since Dec. 2 it exceeded 3.30 percent. Stocks Fall The rise in yields has been overdone in the face of an economy that remains weak and Federal Reserve officials who have said they may buy Treasuries if long-term yields rise too far, Pond said. Ten-year rates will decline to 2.44 percent by March 31, according to the median forecast of 62 economists in a Bloomberg News survey. Global stocks tumbled, with the Dow Jones Stoxx 600 falling 1.9 percent and the Standard & Poor’s 500 Index dropping 1.8 percent. Ten-year Treasury notes headed for the biggest weekly loss since the five days ended June 13 amid concern that debt sales will increase to pay for Obama’s economic stimulus plan, expected to cost $825 billion, and a budget deficit expected to grow to more than $1 trillion. The Treasury Department said that next week it will sell $78 billion in two- and five-year notes and 20-year Treasury Inflation Protected Securities, or TIPS. The government will likely sell $66 billion in three-, 10-, and 30-year securities next month, which equals to an estimated $62.5 billion in 10- year duration equivalents, according to David Ader, head of U.S. interest-rate strategy at Greenwich, Connecticut-based RBS Greenwich Capital Markets, another primary dealer. ‘Most Challenging’ “We’re facing the largest sale of 10-year equivalents ever with the refundings ahead,” Ader said. “Supply is going to be the most challenging thing we’ll have to deal with.” Concern about supply caused shorter-term securities to outperform longer-term notes and bonds this week. The difference between the yields on two- and 10-year notes widened by 24 basis points to 1.83 percentage points, near the widest it has been since the week ended Nov. 28. Government securities, which rose 14 percent last year, handed investors a 1.8 percent loss so far in January according to Merrill Lynch & Co.’s U.S. Treasury Master index. Thirty-year bonds have lost 9.3 percent as investors bet the government’s efforts to reflate the economy will ultimately lead to inflation. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, widened to a nine-week high of 66 basis points. The so-called real yield, or what investors get from 10- year notes after inflation, reached a 16-month high of 2.5 percent. Consumer prices rose 0.1 percent for all of 2008, after increasing 4.1 percent the previous year, Labor Department figures show.

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