Treasuries rose to become the highest-returning major government bonds over three months, including currency changes, as stocks fell on speculation American lawmakers will fail to agree on spending cuts. U.S. securities extended a gain from last week that was driven by concern Europe’s leaders will be unable to contain the region’s debt crisis, boosting demand for haven assets. The Treasury Department is scheduled to sell $35 billion of two-year notes today, the first of three auctions of coupon-bearing debt this week totaling $99 billion. “The policy in the U.S. is as bad as the policy in Europe,� said Roger Bridges, who oversees the equivalent of $15 billion of debt as the Sydney-based head of fixed income at Tyndall Investment Management Ltd., a unit of Japan’s Nikko Asset Management Co. “Investors will be attracted in a flight to quality� to U.S. government debt. Ten-year yields fell three basis points to 1.98 percent as of 12:35 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing November 2021 advanced 7/32, or $2.19 per $1,000 face amount, to 100 4/32. The rate dropped five basis points, or 0.05 percentage points, last week. The MSCI Asia Pacific Index of shares slid 1 percent, heading for a fifth day of losses. Treasuries due in more than a year have returned 1.2 percent in the past three months, the most of bonds in 26 markets in U.S. dollar terms, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies show. Credit Risk The TED spread, the difference between what lenders and the U.S. government pay to borrow for three months, was 49 basis points, the most since June 2009. The two-year Treasury notes being sold today yielded 0.29 percent in pre-auction trading, rising from the 0.281 percent at the prior sale on Oct. 25. Investors bid for 3.64 times the amount for sale in October, versus the average of 3.32 for the past 10 of the monthly auctions. The Fed is scheduled to sell as much as $8.75 billion of Treasuries due in 2012 today as part of a plan announced in September to replace $400 billion in shorter maturities with longer-term debt to cap borrowing costs. Japan’s 10-year yield increased one basis point to 0.955 percent. It set a one-year low of 0.94 percent on Nov. 17. The U.S. congressional supercommittee will probably announce that it has failed to reach agreement on federal budget savings, a Democratic aide said. Downgrade Threat Senator John Kerry, a Massachusetts Democrat and supercommittee member, warned the U.S. may have its debt rating reduced if the group can’t reach an agreement. “There is a real threat that not only will there be a downgrade but that the market on Monday will look again at Washington and say ‘You guys can’t get the job done,’� Kerry said on NBC’s “Meet the Press� program. Standard & Poor’s cut its ranking for U.S. debt to AA+ from AAA on Aug. 5. Demand for Treasuries still grew as European officials struggled to make their own budget cuts, sending 10- year yields to a record low of 1.67 percent on Sept. 23. “People are more concerned with risk aversion than they are with trying to hit a home run on return,� Jeffrey Caughron, an associate partner at Baker Group LP in Oklahoma City, who advises community banks on investments of more than $38 billion, said Nov. 17 in a telephone interview. “It makes sense to stay in Treasuries and high-grade investments until we see a demonstration of responsibility on the part of our Congress and some evidence that things are going to improve with the European situation.� 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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