Treasury 30-year bonds fell as the government prepared to auction $14 billion of them in the largest issue of the securities in three years. Yields on the so-called long bond increased amid speculation the success of two previous auctions this week may have eroded demand for today’s sale. The auction is the largest of the 30- year bond since the Treasury reintroduced the security in a $14 billion sale in 2006 after a five-year hiatus. U.S. retail sales unexpectedly rose in January. “I’m nervous, and I’m anxious,” said David Ader, head of U.S. government bond strategy at Greenwich, Connecticut-based RBS Greenwich Capital, one of the 16 primary dealers that are required to bid in Treasury auctions. “The issue itself is 30 basis points lower today than it was a few days ago. We may have lost some interest.” The yield on the 30-year bond rose three basis points, or 0.03 percentage point, to 3.48 percent at 10:37 a.m. in New York. The price of the 4.5 percent security due in May 2038 fell 20/32, or $6.25 per $1,000 face amount, to 118 21/32. The yield on the three-year note fell six basis points to 1.26 percent. Investors bid for 2.07 times the amount of debt on offer at the last 30-year sale on Nov. 13. The average for the past 10 auctions is 2.18. The bonds were sold to yield 4.31 percent at the November auction. ‘Some Hope’ The government sold $32 billion of three-year and $21 billion of 10-year notes earlier this week in auctions that drew increased demand from indirect bidders, a class of investors that includes foreign central banks. Indirect bidders purchased 44.8 percent of the three-year note sale, the most in more than four years, and 37.8 percent of the 10-year auction, the most in four months. “The big question for the bond is to what degree the buy side shows up,” said John Canavan, a fixed-income strategist at Stone & McCarthy Research Associates in Princeton, New Jersey. “The indirect bid has certainly been a plus for the 10- and three-year this week, which offers some hope for the bond.” Inventories at U.S. businesses fell 1.3 percent in December, the most since 2001, a Commerce Department report showed. Sales at U.S. retailers rose 1 percent in January after declining for six straight months, another Commerce report showed. The number of Americans collecting unemployment benefits rose for a fourth straight week, reaching a record 4.81 million in the seven days ended Jan. 31, the Labor Department said. ‘More Frequent’ The government said Feb. 4 it will sell the 30-year bond eight times a year instead of four as it issues an unprecedented amount of debt to pay for measures to prop up the banking system and battle the recession. The U.S. budget deficit widened to $83.8 billion, more than economists forecast, last month as spending soared and corporate tax receipts shrank, a Treasury report showed yesterday. “We are looking forward to more frequent and regular issuance of the long bond,” said Richard Bryant, a trader of 30- year bonds at Citigroup Global Markets Inc., another primary dealer. “There has been a lack of supply since the bond was canceled; there was not enough paper to satisfy demand from pension funds and insurance companies.” Yields are almost 1.1 percentage points lower than they were at the last $14 billion sale in 2006, when pension funds and insurance companies seeking to match assets with liabilities snapped up the debt. In 2001 Peter Fisher, then Treasury undersecretary and now co-head of fixed income at BlackRock Inc., eliminated the 30-year bond amid a budget surplus and desire to keep long-term borrowing costs low. The U.S. started selling the security in 1977. Economic Stimulus Treasuries earlier gained on speculation the government’s stimulus plan may not be enough to turn the economy around any time soon. The stimulus bill is headed for passage in Congress after lawmakers agreed on a $789 billion package that includes government spending and tax cuts. The plan will be insufficient to avert a 2 percent contraction in the U.S. economy this year, the biggest decline since 1946, as consumer spending posts its longest slide on record, according to a monthly Bloomberg News survey. Yields indicate government and Federal Reserve efforts have yet to restore credit markets to where they were before trading froze last year. The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, widened by two basis points to 95 basis points today. The spread averaged 27 basis points from 2002 through 2006, before the credit crisis began in August 2007. The London interbank offered rate, or Libor, for three-month dollar loans, was little changed at 1.23 percent. It was 1.08 percent on Jan. 14. Average 30-year fixed mortgage rates rose to 5.25 percent in the seven days ended Feb. 5 from 4.96 percent three weeks earlier, according to loan finance company Freddie Mac. Rates are about 2.26 percentage points higher than 10-year Treasury yields, widening from 1.62 percentage points five years ago.

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