Treasury five-year note yields were within three basis points of a record low amid speculation Federal Reserve Chairman Ben S. Bernanke will hint at measures to revive growth when he addresses Congress today. Yields on 10-year Treasury Inflation Protected Securities fell to a record low yesterday before a report today that’s forecast to show consumer prices stagnated in June. Highly-rated government bonds such as Treasures have rallied as reports showed global growth is slowing, raising the prospect of more central bank stimulus. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the economy is “approaching recession� in a Twitter post yesterday. “The global economy needs help and it’s looking to the U.S. to give some optimism,� said Padhraic Garvey, head of developed debt markets at ING Groep NV in Amsterdam. “The expectation is that Bernanke will leave the door open to more stimulus. Treasuries are benefiting from this global environment and the odds are that yields will test lower.� Five-year Treasury note yields were at 0.60 percent at 6:29 a.m. New York time, after dropping to a record 0.577 percent yesterday. The price of the 0.75 percent security maturing in June 2017 was at 100 23/32. Ten-year note yields were little changed at 1.48 percent. They reached an all-time low of 1.4387 percent on June 1. Austrian two-year government note yields fell below zero for the first time, while French yields dropped to the least on record as investors sought the safest assets on concern economic growth is slowing globally. Consumer Prices Bernanke will deliver his semi-annual report on the economy and monetary policy today and tomorrow, after data yesterday showed an unexpected contraction in retail sales in June. Goldman Sachs Group Inc. is scheduled to report earnings today. The forecast for an unchanged consumer price index, based on the median estimate of 81 economists surveyed by Bloomberg News, follows a 0.3 percent drop the prior month. Separate reports may show industrial production and homebuilder sentiment climbed. Consumer prices rose 1.6 percent from a year earlier, according to economist estimates. The figure would still be higher than the 10-year Treasury rate, resulting in a so-called real yield of negative 12 basis points. Inflation Expectations The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt known as the break-even rate, was 2.08 percentage points. The 10-year average is 2.15 percentage points. The five-year, five-year forward break-even rate, a measure of inflation expectations that the Fed uses to guide monetary policy, was 2.4 percentage points as of July 12. The figure has dropped from 2012’s high of 2.78 percentage points set in March. While the two gauges show expectations for price increases are waning, yields indicate there is still demand for the inflation insurance that TIPS provide. Yields on 10-year TIPS fell to a record low of negative 0.68 percent yesterday. The U.S. is scheduled to sell $15 billion of the securities July 19. Inflation probably isn’t slowing enough to lead the Fed to increase its so-called quantitative-easing policy of bond purchases, said Toby Nangle, head of multi-asset allocation at Threadneedle Investments in London. Inflation Expectations “You need to have break-even inflation expectations in the States to fall further,� Nangle said yesterday on Bloomberg Television’s “The Pulse� with Maryam Nemazee. “You typically don’t get more QE without inflation expectations falling below 2 percent. We’re not quite there yet.� Threadneedle manages the equivalent of $113.6 billion, according to its website. The Fed under Bernanke bought $2.3 trillion of Treasury and mortgage-related debt from 2008 to 2011 to stimulate the economy. The central bank decided in June to extend a policy known as Operation Twist, where it sells short-term securities and uses the proceeds to buy longer-term debt, to $667 billion from $400 billion. Goldman Sachs analysts led by Jan Hatzius cut their estimate for second-quarter gross domestic product growth to 1.1 percent from 1.3 percent yesterday. Fed Bank of Kansas City President Esther George said yesterday the U.S. economy probably won’t grow much faster than 2 percent in 2012. The U.S. is “approaching recession when measured by employment, retail sales, investment, and corporate profits,� Gross, who runs Pimco’s Total Return Fund, the world’s largest mutual fund, wrote on Twitter yesterday. To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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