Treasuries snapped a gain from last week before data economists said will show service industries in the U.S. expanded in October, while China also reported faster growth in non-manufacturing businesses. Benchmark 10-year yields were 33 basis points from the record low as Americans prepared to choose a leader who will face unprecedented debt levels and the so-called fiscal cliff, which threaten to slow the economy. President Barack Obama and challenger Mitt Romney will ask voters to choose who will steer the economy over the next four years in tomorrow’s vote. “Investors should be cautious on Treasuries,� said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “We’re seeing signs of recovery in the two largest economies,� he said, referring to the U.S. and China. U.S. 10-year notes yielded 1.71 percent as of 6:44 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent note due in August 2022 was 99 7/32. The yield declined three basis points, or 0.03 percentage point, last week. The record low was 1.38 percent set July 25. It will be 2 percent by year-end, Shimazu said. A Bloomberg survey of banks and securities companies projects 1.74 percent at Dec. 31 and 2.03 percent by the end of June, with the most recent projections given the heaviest weightings. Japan’s 10-year rate was little changed at 0.77 percent today. It has been in a range of 0.76 to 0.80 for a month. ISM Data The Institute for Supply Management’s U.S. non- manufacturing index, which covers almost 90 percent of the economy, was probably 54.5 last month, little changed from 55.1 in September, according to the median forecast in a Bloomberg News survey before today’s figures at 10 a.m. New York time. Readings above 50 signal growth. An index of China’s non-manufacturing industries rose to 55.5 in October from 53.7 the month before, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing on Nov. 3. Obama increased the publicly traded U.S. debt to a record $10.8 trillion as of August. The so-called fiscal cliff refers to $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless the U.S. Congress acts. The global economy still faces dangers, according to Group- of-20 finance ministers and central bankers meeting in Mexico City. Elevated Risks A draft of the statement to be issued by policy makers from the group described growth as modest and risks elevated, said an official from one of the countries who asked not to be identified because the statement hasn’t been finalized. The U.S. central bank plans to buy as much as $2.25 billion of Treasuries maturing from February 2036 to August 2042 today, according to Federal Reserve Bank of New York’s website. The Fed is swapping shorter-term Treasuries in its holdings with those due in 6 to 30 years as part of its efforts to support the U.S. economy by putting downward pressure on long-term borrowing costs. The Treasury Department is scheduled to sell $32 billion of 3-year notes tomorrow, $24 billion of 10-year securities the next day and $16 billion of 30-year bonds on Nov. 8. A U.S. report Nov. 2 showed payrolls expanded by 171,000 last month, following a 148,000 gain in September that was larger than first estimated. Unemployment rose to 7.9 percent from 7.8 percent. Surprise Index The Citigroup Economic Surprise Index, which shows whether U.S. data beat or fell short of forecasts, climbed to 56.6 on Nov. 2, the most since February. The difference between 10- and 30-year yields widened to 1.19 percentage points on Nov. 2, the most in two weeks. The average over the past decade is 70 basis points. Thirty-year bonds are more sensitive to the outlook for inflation because of their long maturity. The spread between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.45 percentage points. The decade-long average is 2.17 percentage points. For the first time since the financial crisis in 2008, all 26 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies including Treasuries are poised to generate returns on an annual basis. Gains this year range from Portugal’s 47 percent to Japan’s 1.78 percent. After years of spending to bolster their economies, governments are getting a handle on their borrowing. The par amount of debt tracked by Bank of America Merrill Lynch’s Global Sovereign Broad Market Plus Index has risen 7.3 percent this year to $23.6 trillion, the smallest increase since 2005, when it fell 3.7 percent. “The longer-term bull market in government bonds is still intact all over the world,� Howard Simons, a Bianco Research LLC strategist in Chicago, said in a Nov. 2 phone interview. 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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