By Ye Xie and Oliver Biggadike July 15 (Bloomberg) -- Investors are turning less bearish on Treasuries and the dollar as signs the global economic recovery may not be as quick as anticipated bolsters demand for U.S. assets, a survey of Bloomberg users showed. Participants lowered their expectations for how high yields on 10-year Treasuries will rise and how far the dollar will fall over the next six months after the U.S. unemployment rate approached 10 percent and global stocks declined, according to 2,738 respondents from New York to Tokyo to London in the Bloomberg Professional Global Confidence Index. The outlook on the pound fell from the most bullish level since November 2007 to neutral, while optimism toward Brazil’s real faded. “Market expectations for a robust recovery are premature,” said Paresh Upadhyaya, who helps manage $21 billion in currencies as senior vice president at Putnam Investments in Boston and took part in the survey. “You’re starting to see the market tone down their expectations. The risk is in the real short term that the dollar may benefit from any bouts of risk aversion.” Treasuries have returned 0.6 percent in July, their best performance since March as record borrowing by President Barack Obama to stimulate the economy and finance the budget deficit failed to dissuaded buyers. An auction of $19 billion of 10-year notes last week drew the most demand ever, as measured by the amount of bids relative to the securities offered for sale. Investors became less confident about the global economic recovery, according to the survey. Participants’ confidence in the global economy declined to 39, from 43.6, the highest level since November 2007. Falling Yields The yield on the benchmark 10-year note has fallen 52 basis points, or 0.52 percentage point, since reaching a high this year of 4 percent on June 11. Over the same period the Standard & Poor’s 500 Index declined 4.3 percent from a seven-month high reached on June 12 and the U.S. unemployment rate touched 9.5 percent for June. The index of participants’ expectations for an increase in 10-year yields declined to 64.1 in July, from 73.7 a month earlier. The June reading was the highest since Bloomberg began compiling the data in November 2007. The measure is a diffusion index, meaning a reading above 50 indicates Bloomberg users expect yields to rise. “We don’t think the long-term yield is going to deviate too much from here,” said Suvrat Prakash, an interest-rate strategist in New York and survey participant at BNP Paribas Securities Corp., one of the 17 primary dealers required to bid at Treasury auctions. “The yields are at pretty good levels to balance the supply and demand. If anything, there could be some deflationary signs in the economy to keep yields lower.” Japanese Bonds The yield on the benchmark 10-year note will rise to 3.71 percent by next year, according to the weighted average of 61 forecasts in a separate Bloomberg News survey that places a greater emphasis on the most recent estimates. For German bunds, the outlook was little changed at 67.44, from 67.34, while sentiment on Japanese government bonds tumbled to 48.08 from 61.21. Japanese bonds will beat Treasuries this year for the first time in a decade as the economy shrinks at twice the pace of the U.S., the largest traders in the securities said. The yield on Japan’s 10-year bond will end 2009 at 1.30 percent, little changed from the three-month low of 1.27 percent set last week, based on the median estimate in a separate Bloomberg News survey of the 23 primary dealers that bid at government debt sales. Dollar Outlook The index of expectations for the dollar rose to 43.8 this month, from 31.6 in June, which was the lowest since March 2008, according to the survey. The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, krona and Swiss franc, fell 6.2 percent in May, the biggest drop since March 1985. Signs that the recession may be ending drove investors to cut their dollar holdings and buy higher-yielding assets. The dollar index has gained 2 percent since reaching a six- month low of 78.33 on June 2. Demand for the currency as a refuge increased after the World Bank said on June 22 that the global economy will contract 2.9 percent in 2009, compared with its previous forecast of a 1.7 percent decline. Real Sentiment Those surveyed in Brazil were less upbeat on the real, with the index falling to 66.5, from 78.6 in June. The real has gained 16 percent this year to 1.99 per dollar, the best performer among 16 most-actively traded currencies. “I do see the global economy improving somewhat, but not completely stabilizing,” said Fabian Eliasson, a survey participant and head of U.S. currency sales at Mizuho Corporate Bank Ltd. in New York. “Risky trades came back very, very quickly. It’s too late to get into the game, based on the idea that the global recovery is very slow.” In the U.K., Bloomberg users turned neutral on the pound. The sentiment index for sterling dropped to 50 from 62.4, the highest level since November 2007. The pound has rallied 11 percent against the dollar and the euro this year. New York-based Goldman Sachs Group Inc. cut its three-month forecast for the pound this month to 84 pence per euro, from 87.5, saying economic improvement has become “more muted.” “The period of clear sterling outperformance is likely coming to an end, and we see less appreciation potential vis-à- vis the euro,” currency strategists led by Thomas Stolper at Goldman Sachs in London wrote in a monthly report to clients on July 8. “Worries about the fiscal outlook in the U.K., and the potential need to cut expenditure also suggest the appreciation potential may be more limited now.” To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net

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