Treasuries snapped a decline from yesterday on speculation investors will seek the relative security of U.S. government debt as European nations trying to preserve the region’s currency rush to borrow. Demand for safety has pushed Treasuries due in 10 years or more up 29 percent in the past year, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for currency changes. The Federal Reserve’s decision to publish forecasts for its key interest rate will reveal plans to keep the rate (FDTR) at a record low through 2013, according to RBC Capital Markets Corp. “The flight to quality because of the European situation and the Fed stance for monetary policy are keeping yields low,� said Hiroki Shimazu, an economist at SMBC Nikko Securities Inc., in Tokyo, a unit of Japan’s third-largest publicly traded bank by assets. U.S. 10-year rates (USGG10YR) held at 1.95 percent as of 2 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 changed hands at 100 13/32. The yield climbed to 1.96 percent yesterday, the most since Dec. 28. Japan’s 10-year rate was little changed at 0.985 percent, versus 2011’s low of 0.94 percent set Nov. 17. European Auctions Europe’s bailout fund, the European Financial Stability Facility, plans to raise 3 billion euros ($3.9 billion) from a sale of three-year bonds as soon as this week, after Standard & Poor’s said in December it may lose its top credit rating. Germany is scheduled to sell 5 billion euros of bonds today. Portugal, forced to seek an EU-led rescue in May, will look to raise as much as 1 billion euros today, followed by auctions from Greece, Italy and Spain later in the month, as common currency members begin sales that may reach 262 billion euros in the first quarter and 865 billion euros in 2012, according to Deutsche Bank AG forecasts. German Chancellor Angela Merkel and French President Nicolas Sarkozy are scheduled to meet on Jan. 9 to work on ways to curb government spending in the region. Treasuries fell yesterday after a private report showed U.S. manufacturing (NAPMPMI) expanded in December at the fastest pace in six months. Manufacturing Data U.S. factory orders probably rose 2 percent in November from the prior month, according to the median forecast in a Bloomberg News survey of economists before the Commerce Department issues the figure today. They declined 0.4 percent in October. “I’m bearish on Treasuries because the market is underestimating the strength of the U.S. economy,� said Tsutomu Komiya, a bond investor in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $120.7 billion and is a unit of Japan’s second-biggest brokerage. Manufacturing figures this week from China, India, Switzerland and the U.K. also showed improvement. The U.S. 10-year yield is projected to advance to 2.69 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. The extra yield that investors demand to buy U.S. high- yield bonds instead of Treasuries narrowed to 7.06 percentage points yesterday, the least since October, according to Bank of America Merrill Lynch data. The difference (USGGBE10)between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.05 percentage points. The figure is eight basis points less than the average for the past decade but 10 basis points more than the current benchmark yield. A basis point is 0.01 percentage point. Fed Forecasts Fed officials said yesterday they will start announcing their predictions for the central bank’s key interest rate. Last month, they repeated their view that economic conditions would warrant “exceptionally low levels for the federal funds rate at least through mid-2013.� They have kept the target near zero since December 2008. “This should effectively extend the extended period before the rate hike,� Michael Cloherty, the head of U.S. rates strategy at RBC in New York, said in a report yesterday. The forecasts will probably show the increases will begin in 2014, according to RBC, which is one of the 21 primary dealers that trade with the central bank. The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and foster economic growth, in a plan it announced in September. The central bank is scheduled to sell as much as $8.75 billion of securities due from May 2013 to October 2013 today as part of the program, according to the New York Fed’s website. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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