By Wes Goodman July 24 (Bloomberg) -- Treasuries were little changed, pausing a two-day decline, before a report that economists said will show U.S. consumer confidence fell to the lowest level since March. Notes gained initially amid speculation yields are high enough to lure investors to a record $115 billion in debt sales next week, with benchmark 10-year rates near the most in a month. President Barack Obama is borrowing unprecedented amounts to try to halt the steepest U.S. economic recession in 50 years, raising concern benefits from stimulus spending won’t last. “They cannot continue to spend at this rate,” said Sungjin Park, who helps oversee the equivalent of $49.8 billion as head of fixed income in Seoul at Samsung Investment Trust Management, South Korea’s largest private investor. “That will make the global economy gloomier in the second half. We can buy Treasuries here and expect capital gains.” The yield on the 10-year note was 3.67 percent as of 7:36 a.m. in London, according to BGCantor Market Data. The 3.125 percent security maturing in May 2019 traded at a price of 95 17/32. Yields were little changed this week. They climbed to 3.71 percent yesterday, approaching the highest level since June 23. The government and the Federal Reserve have spent, lent or pledged more than $12 trillion to revive the U.S. economy and credit markets. Consumer Confidence “News showing the economy making strides will set better with risk assets than Treasuries, at least for a time,” Tony Crescenzi, a portfolio manager at Pacific Investment Management Co. wrote in a report to clients yesterday. “Eventually, focus will shift back to the many constraints to growth.” Pimco, based in Newport Beach, California, manages the Total Return Fund, the world’s biggest bond fund with $161 billion in assets. The Reuters/University of Michigan final index of consumer sentiment dropped to 65 in July from 70.8 in June, according to the median estimate of 57 economists surveyed by Bloomberg News. A separate survey shows the U.S. economy will grow in the third quarter for the first time in a year. U.S. government securities trimmed initial gains as investors sought Asian bonds and stocks. The Markit iTraxx Japan index of credit-default swaps dropped 10 basis points to 1.55 percentage points, according to Morgan Stanley. Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of credit quality and a drop shows improvement. MSCI’s Asia Pacific Index of regional shares rose 0.8 percent, rallying for a ninth day. ‘Bearish on Treasuries’ Stocks gained over the past two weeks on speculation the worst is over for the financial crisis that led to $1.52 trillion of writedowns and credit losses at banks and other institutions. The MSCI World Index of stocks rose 11 percent during the period, according to data compiled by Bloomberg. Treasuries fell 1.7 percent, and U.S. corporate bonds were little changed, indexes compiled by Merrill Lynch & Co. show. Ferguson Wellman Capital Management Inc. in Portland, Oregon, cut its Treasury holdings and added corporate bonds on signs that the U.S. economy is improving. “We’re bearish on Treasuries,” said Marc Fovinci, head of fixed income at the firm, which has $2.8 billion in assets. “The economy is looking better as opposed to worse.” Easing Credit Fovinci said he bought high-grade company bonds, including those of Shell Oil Co., a unit of Europe’s biggest oil company, and AT&T Inc., the largest U.S. phone company, in June. Ten-year Treasury yields will rise to 3.67 percent by year- end, Bloomberg surveys show, with the most recent forecast given the heaviest weighting. The Fed’s efforts to thaw credit markets that froze last year are showing some signs of success. Merrill’s U.S. Corporate & High Yield Master index yields 4.37 percentage points more than Treasuries, half of what the spread was in December The extra yield that three-month Libor offers over the overnight indexed swap rate, the Libor-OIS spread, was 30 basis points, the lowest level in 18 months. A narrowing spread indicates banks are becoming more willing to lend to each other. The Singapore interbank offered rate for three-month U.S. dollar loans rose for the first time in six days. The rate, known as Sibor, was set at 0.5057 percent, versus 0.50 percent yesterday. U.S. 30-year fixed mortgage rates rose to 5.39 percent from this year’s low of 4.85 percent in April. They were as high as 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida. Debt Auctions Treasuries slid yesterday as stocks rallied and the U.S. announced record debt auctions. The Dow Jones Industrial Average closed above 9,000 for the first time since January. Next week will be only the second time the Treasury auctions three so-called coupon issues and an inflation-linked maturity in a five-day period since the U.S. started selling debt regularly in 1976. “The amount of supply needing to be sold still carries a lot of shock value,” said Eric Lascelles, chief economist and strategist at TD Securities Inc. in Toronto. “Throw the stock rally on top of that and you have a good argument for selling Treasuries,” he said yesterday. The U.S. plans to sell $6 billion in 20-year Treasury Inflation Protected Securities, $42 billion in 2-year notes, $39 billion in 5-year securities, and $28 billion in notes maturing in seven years. The auctions will be held over four consecutive days starting on July 27. The previous record was $104 billion in 2-, 5-, and 7-year notes sold the week of June 22. Currency Intervention The government more than doubled note and bond offerings to $963 billion in the first half of 2009 as it tries to end the U.S. economic recession. It may sell another $1.1 trillion by year-end, according to Barclays Plc, one of the 17 primary dealers that are required to bid at the auctions. Central banks of emerging nations are boosting demand for U.S. Treasuries as they sell their currencies to stem appreciation, according to Brown Brothers Harriman & Co. A rising currency can curtail demand for a nation’s products. “Emerging market policy makers do not want a stronger currency at this stage of their business cycles”, wrote Win Thin, a currency strategist at Brown Brothers in New York. “We fully expect currency intervention to surge this month.” To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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