By Wes Goodman April 7 (Bloomberg) -- Treasuries snapped a two-day decline as yields at the highest level in a month lured some investors betting the Federal Reserve is more than a year away from raising interest rates. Fed Bank of Atlanta President Dennis Lockhart said he expects the central bank to refrain from tightening monetary policy in 2011 with the recovery still fragile. The central bank is scheduled to buy $5.5 billion to $7.5 billion of Treasuries due from April 2015 to September 2016 today as part of its plan to pump $600 billion into the banking system. “Yields are attractive,” said Tsutomu Komiya, who helps oversee the equivalent of $101 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage by market value. “I don’t agree that they’ll tighten within a year. Inflation remains contained.” Ten-year rates were little changed at 3.53 percent as of 6:23 a.m. in London, according to Bloomberg Bond Trader prices. The 3.625 percent note due in February 2021 traded at 100 3/4. The rate advanced to 3.56 percent today, the most since March 4. Lockhart said he doesn’t expect the central bank to tighten U.S. monetary policy with inflation low. “I wouldn’t rule it out entirely, but at this stage I personally am not leaning in the direction of thinking that is absolutely required,” Lockhart told reporters yesterday during an Atlanta Fed conference at Stone Mountain, Georgia. Inflation Outlook A recent quickening in inflation must be viewed in light of the fact the Fed wanted prices to accelerate last year, when deflation seemed to be a growing threat, Lockhart said. The Fed will raise its target for overnight bank lending to 0.50 percent from the current range of zero to 0.25 percent in the first quarter of next year, based on a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. The European Central Bank will boost its main rate by a quarter percentage point from a record low 1 percent today, according to all 57 economists surveyed by Bloomberg. Bank of Japan officials held their benchmark at a range of zero to 0.1 percent after a meeting today in Tokyo. Treasury bears said an improving U.S. economy is sending yields higher. The number of U.S. workers filing first-time claims for jobless benefits declined by 3,000 to 385,000 last week, according to a Bloomberg News survey before the Labor Department report today. Claims have fallen from 472,000 a year ago. ‘I’m Bearish’ “I’m bearish” on U.S. debt, said Yusuke Tanaka, senior dealer in Singapore at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest bank. “The U.S. economy is improving gradually.” Bond investors should favor Treasury Inflation Protected Securities, high-yield debt and emerging-market securities as the U.S. economy improves, according to Fidelity Investments. “Inflationary expectations could rise to uncomfortable levels,” Jurrien Timmer, co-manager of the Fidelity Dynamic Strategies Fund, wrote in a report yesterday on the company’s website. “Treasury Inflation Protected Securities could continue to do well, especially in contrast to regular Treasuries,” according to Fidelity, the Boston-based fund company that oversees $1.6 trillion. Debt Sales The Treasury is scheduled to announce today the sizes of next week’s auctions. Sales will consist of $32 billion of 3-year notes, $21 billion of 10-year debt and $13 billion of 30-year bonds in three auctions beginning April 12, according to a Bloomberg survey of nine bond-trading companies. The sales will proceed even if a deadlock in Congress shuts the government, according to a Treasury official and dealers. The difference in yield between five-year notes and inflation-indexed debt, a gauge of trader expectations for inflation over the life of the securities, widened to 2.41 percentage points yesterday, the most since July 2008. Gold for immediate-delivery rose to a record $1,462.35 an ounce today in Asian trading. Crude oil for May delivery finished trading yesterday at $108.83 a barrel, the highest closing level in 30 months. Fed policy makers at a meeting last month debated whether to begin removing record stimulus in 2011, according to minutes of their March 15 meeting released April 5. “A few participants indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year; a few others noted that exceptional policy accommodation could be appropriate beyond 2011,” according to the minutes. Inflation expectations are overdone, Carl Weinberg, chief economist at High Frequency Economics Ltd. in Valhalla, New York, said in an interview yesterday on Bloomberg Radio’s “Bloomberg Surveillance.” “What we are experiencing right now is a transient, one- time shock, particularly to energy prices,” Weinberg said. “Bond yields are probably going to go up from here as the economy recovers. But we are not expecting to see the inflation push that the market sees.” The 10-year rate may be 4.25 percent in 12 months, he said. --Editors: Nicholas Reynolds, Rocky Swift To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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