Treasuries rose as Japan, South Korea and Brazil moved to counter an economic slowdown, sending U.S. yields toward record lows as investors sought the relative safety of the nation’s securities. The U.S. is scheduled to sell $13 billion of 30-year bonds, the best-performing Treasuries this year, after the Federal Reserve said yesterday some policy makers favored increasing the central bank’s debt purchases to spur the expansion. Demand for so-called long bonds has reduced the extra yield they offer over five-year notes to 1.98 percentage points, versus the average of 2.24 percentage points for the past 12 months. “There’s a possibility that yields will go lower,� said Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $69 billion in assets. “The central bank may continue purchases of bonds. There are only a few risk-free assets, and people don’t want to take risks.� Benchmark 10-year yields declined two basis points, or 0.02 percentage point, to 1.50 percent as of 7:09 a.m. in London, according to Bloomberg Bond Trader prices. The rate dropped to a record 1.44 percent on June 1. The 1.75 percent security maturing in May 2022 rose 6/32, or $1.88 per $1,000 face amount, to 102 10/32. Thirty-year bonds yielded 2.6 percent, versus the all-time low of 2.51 percent, also set at the start of June. Korea, Brazil The Bank of Korea cut borrowing costs for the first time in more than three years, lowering the seven-day repurchase rate to 3 percent today. Brazil reduced its benchmark rate for the eighth straight time to 8 percent yesterday. The Bank of Japan (8301) bolstered its asset-purchase fund while cutting a credit-loan facility by the same amount. In Australia, the number of people employed fell by 27,000 in June, almost erasing a revised 27,800 gain in May, the statistics bureau said in Sydney. U.S. reports today may show initial claims for jobless benefits and import prices booth declined, based on Bloomberg News surveys of economists. Global economic growth will slow to 2.26 percent this year from 2.90 percent in 2011, a separate survey showed. The decline in benchmark borrowing costs has sparked a search for higher yields outside the government bond market. Investors have poured almost $11 billion into equity income funds and $80 billion into corporate bond funds this year, according to a July 10 report by Bank of America Merrill Lynch, one of the 21 primary dealers that trade directly with the Fed. ‘Scarce’ Yield “Yield continues to be a scarce, and thus a coveted asset,� according to the report by Michael Hartnett and Kate Moore, strategists for the bank in New York. The term premium, a model created by the Fed that includes expectations for interest rates, growth and inflation, showed Treasuries are the most expensive ever. The gauge fell to a record negative 0.96 percent on July 10. It was negative 0.94 percent today. The 30-year bonds being sold today yielded 2.609 percent in pre-auction trading, versus 2.72 percent at the prior sale June 14. Investors bid for 2.40 times the amount of debt offered, the least since November at the monthly auctions. Indirect bidders, the investor group that includes foreign central banks, purchased 32.5 percent of the securities, compared with the 10-sale average of 31.6 percent. Direct bidders, non-primary dealers buying for their own accounts, purchased 24 percent, the most since October. The government is also scheduled to announce today the size of a 10-year sale of Treasury Inflation Protected Securities scheduled for July 19. Comparative Returns Thirty-year securities have returned 7.8 percent this year, versus 5 percent for 10-year notes and 0.1 percent for two-year debt, Bank of America Merrill Lynch indexes showed. TIPS returned 5.7 percent, according to the indexes. A few Fed policy makers said the central bank will probably need to take more action “to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal,� according to minutes released yesterday in Washington of the Federal Open Market Committee’s June 19-20 gathering. The Fed bought $2.3 trillion of securities in two rounds of so-called quantitative easing from 2008 to 2011 to support the economy. In September it embarked on a plan to replace $400 billion of short-maturity Treasuries in its portfolio with longer-term debt to cap borrowing costs. It expanded the effort on June 20 by $267 billion and extended it until year-end. The central bank plans to sell as much as $8 billion of securities due from July 2013 to January 2014 today as part of the plan, according to the Fed Bank of New York website. 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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