By Cordell Eddings and Anchalee Worrachate July 22 (Bloomberg) -- Treasuries were little changed, snapping a two-day rally, before Federal Reserve Chairman Ben S. Bernanke resumes his testimony before Congress on monetary policy and the outlook for inflation. Thirty-year bonds rose the most in almost two months yesterday after Bernanke said “limited inflation pressures” will allow policy makers to keep the main interest rate near zero. A survey by Bloomberg News showed investors are willing to take more risk as they hunt for opportunities. The Treasury is scheduled to announce the size of next week’s auctions tomorrow as a two-week hiatus in the record pace of debt sales comes to an end. “Treasuries were a little overbought yesterday,” said Paul Horrmann, a senior broker in Jersey City, New Jersey at ICAP Plc, the world’s largest inter-dealer broker. “The market is going to be a volatile grind today as we wait for Bernanke.” The 30-year bond yield rose one basis point, or 0.01 percentage point, to 4.40 percent at 9:33 a.m. in New York, according to BGCantor Market Data. The 4.25 percent security due May 2039 fell 3/32, or 94 cents per $1,000 face amount, to 97 18/32. It rose 1 31/32 yesterday, the most since May 29. The 10-year yield dropped to 3.45 percent yesterday, the lowest since July 15. It will climb to 3.67 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Shares, Commodities The first Quarterly Bloomberg Global Poll of investors and analysts singled out stocks and commodities as offering the most promising returns over the next year. The survey was conducted across six continents between July 14 and 17. The Reuters/Jeffries CRB Index of 19 commodities gained 7.5 percent so far this year, rebounding from last year’s record 36 percent slump. The U.S. plans to auction 20-year TIPS on July 27, followed by 2-, 5-, and 7-year securities on three consecutive days starting on July 28. The Treasury Department will announce tomorrow the amounts to be sold. Ten-year yields touched 4 percent in June amid speculation President Barack Obama’s record borrowing would overwhelm demand amid signs the longest recession since the Great Depression may be coming to an end. The government more than doubled note and bond offerings to $963 billion in the first half of 2009 as it tries to end the recession. It may sell another $1.1 trillion by year-end, according to Barclays Plc, one of the 17 primary dealers that trade with the Fed. Budget Deficit The budget deficit this year is projected to reach $1.85 trillion, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office. The U.S. government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets. An index of U.S. government debt maturing in more than a year handed investors a 1.6 percent loss in the past three months, according to the Paris-based European Federation of Financial Analysts’ Societies. The index ranks No. 18 of 20 compiled by the group, beating only Canada and Australia. U.S. bonds are last after accounting for a decline in the dollar during the period, the only one of the 20 markets to lose money. MSCI’s World Index of stocks returned 18 percent, based on price appreciation and reinvested dividends, according to data compiled by Bloomberg. Financial Crisis The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.52 trillion of writedowns and credit losses at banks and other institutions and sent the global economy into its first recession since World War II. Bernanke will testify before Congress for a second day today amid speculation he will assure lawmakers inflation is under control. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, fell one basis point to 1.78 percentage points. It fell by 10 basis points yesterday, the most in seven weeks. Ten-year Treasuries offer a real yield, or what investors get after accounting for inflation, of 4.90 percent. The real yield was 5.25 percent on June 10, the highest since 1994. Inflation Rate “As long as the unemployment rate is going up, inflation won’t increase,” said Tsutomu Komiya, an investment manager in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $103.8 billion. “It’ll be a good driver for the bond market. Yields will decline.” Fed officials said in a report submitted as part of Bernanke’s testimony that policy will be “tightened” when the labor market improves, an economic recovery takes hold and pressures holding down inflation “diminish.” U.S. unemployment rose to 9.5 percent in June, the most since 1983. The Fed is buying $300 billion of Treasuries over six months in a plan it announced in March, seeking to cap consumer borrowing costs. It acquired $7 billion of Treasuries maturing between May 2016 and May 2018 yesterday, and plans to purchase securities due from August 2026 to May 2039 tomorrow, according to its Web site. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net;

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