Treasuries rose, pushing the two-year yield to a record low, before a government report that analysts said will show U.S. personal incomes and spending stalled in June as the economy slowed. The 10-year yield approached the lowest in two weeks as investors pared their inflation expectations, making it likely the Federal Reserve will keep interest rates at a record low to safeguard the recovery. A government report this week will likely show the U.S. economy lost jobs for a second consecutive month in July, marking the first back-to-back declines since October, according to a Bloomberg survey of economists. “The flavor of the commentary has been tilted toward the accommodation side,” said Sean Maloney, a fixed-income strategist at Nomura International Plc. With interest rates “likely to stay low for a while, fixed-income assets can hold up very well even in the face of risk-asset rallies,” he said. The yield on the benchmark 10-year bond fell five basis points to 2.92 percent as of 10:27 a.m. in London, according to BGCantor Market Data. The 3.5 percent note maturing in May 2020 rose 13/32, or $4.06 per $1,000 face amount, to 104 28/32. The yield fell to 2.896 on July 30, the least since July 22. The two-year rate was as low as 0.5301 percent, reaching a record for a third day, according to data compiled by Bloomberg. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer-price gains, narrowed four basis points to 1.79 percentage points. The spread was 2.49 percentage points in January, the widest this year. Incomes Rose Incomes rose 0.2 percent in June after a 0.4 percent gain a month earlier, according to the median forecast in a Bloomberg News survey of economists before the Commerce Department issues the figure. The same report will show spending slowed, according to the survey. Contracts to buy U.S. previously owned homes probably rose in June after a record plunge the month before, a separate report may show. Payrolls declined by 60,000 last month, adding to a drop of 125,000 in June, Labor Department figures will show on Aug. 6, according to the median estimate of 77 economists surveyed by Bloomberg. Treasuries slid yesterday as stocks rose worldwide, cutting demand for the relative safety of government debt. Government securities rebounded today as the Stoxx Europe 600 Index declined 0.3 percent. Libor, Fed Speculation The London interbank offered rate, which banks pay for dollar loans, is tumbling partly on speculation the Federal Reserve will resume buying bonds, Anthony Crescenzi of Pacific Investment Management Co. said. Three-month Libor fell to 0.445 percent yesterday, the lowest level since May. Pimco, which runs the world’s biggest bond fund, said Libor may decline to 40 basis points as traders bet the U.S. central bank will renew its asset purchases, a policy known as quantitative easing. “Speculation over whether the Fed might again engage in QE reinforces the trend,” Newport Beach, California-based Crescenzi wrote in an e-mail to clients yesterday. The central bank will probably reduce the rate it pays on bank reserves at this month’s meeting, according to BNP Paribas SA, one of the 18 primary dealers that trade directly with the Fed. Bernanke said yesterday that rising wages will probably spur household spending in the next few quarters, prompting John Ryding, a former Fed researcher, to say central bankers aren’t ready to make policy changes this month. “Further action still has a pretty high hurdle to get over,” said Ryding, co-founder and chief economist at RDQ Economics LLC in New York. “The status quo on policy remains.” ‘Scary Trajectory’ President Barack Obama is borrowing unprecedented amounts as he tries to sustain the expansion, boosting the U.S. publicly traded debt to $8.1 trillion. The Treasury is scheduled to announce tomorrow the sizes of 3-, 10- and 30-year auctions set for next week. U.S. borrowing is becoming a concern, according to Yu Yongding, a former central bank adviser in China. “I do not think U.S. Treasuries are safe in the medium- and long-run,” Yu, a member of the state-backed Chinese Academy of Social Sciences, wrote yesterday in an e-mailed response to questions. China is unable to sell the securities in a “big way” and a “scary trajectory” of budget deficits and a growing supply of dollars put their value at risk, he said. China is America’s largest creditor, holding $867.7 billion of the nation’s debt. U.S. policy makers used purchases of Treasury, housing- agency and mortgage-backed securities to spur growth after cutting the benchmark interest rate to a range of zero to 0.25 percent in 2008. The Fed’s asset purchases increased the size of its balance sheet to a record $2.35 trillion in May from $900 billion two years earlier.

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