Treasuries snapped a decline before a report tomorrow that may show the world’s largest economy isn’t growing fast enough to stop the Federal Reserve from boosting monetary stimulus. Yields on 30-year bonds fell from a three-month high ahead of data that economists say will show U.S. gross domestic product expanded an annualized 2.8 percent in the three months ended Sept. 30. The U.S. central bank will start to buy Treasuries at a pace of $45 billion a month next year to support growth. The Treasury will auction $29 billion of seven-year notes today. “The Fed’s purchases of bonds are like pouring hot water in a bathtub that’s leaking,� said Akira Takei, head of the international fixed-income department in Tokyo at Mizuho Asset Management Co., which oversees about $39 billion. “The U.S. economy will shrink if the Fed turns off the tap.� The 30-year yield slid one basis point to 2.99 percent as of 7:06 a.m. in London after touching 3.03 percent yesterday, the highest since Sept. 17. The 2.75 percent security due in November 2042 rose 1/8, or $1.25 per $1,000 face amount, to 95 1/4. The benchmark 10-year yield fell one basis point, or 0.01 percentage point, to 1.81 percent. Ten-year yields may fall to 0.7 percent by the end of next year, Takei said. That compares with the record low of 1.38 percent set on July 25. Should his forecast turn out to be correct, investors who buy the security today will gain 11 percent, according to data compiled by Bloomberg. Fed’s Purchases The Fed will buy as much as $2.25 billion of Treasuries today maturing between February 2036 and November 2042, according to the New York Fed’s website. The purchase is part of a program known as Operation Twist, under which the central bank is replacing shorter-maturity notes in its holdings with longer- dated debt. With the program set to expire this month, the Fed will begin to buy U.S. government bonds next year in a new round of so-called quantitative easing that doesn’t involve selling shorter-term securities. Richard Fisher, president of the Fed Bank of Dallas, said yesterday that the U.S. isn’t seeing much inflationary pressure. The seven-year notes scheduled for sale today yielded 1.255 percent in pre-auction trading, rising from 1.045 percent at the previous sale of the securities on Nov. 29. Investors bid for 2.81 times the amount of available seven- year debt last month, compared with the average of 2.74 for the previous 10 auctions. Direct bidders, non-primary dealers buying for their own accounts, purchased 19.7 percent of the notes, the most on record dating back to 2009. Budget Talks Demand for Treasuries was damped amid speculation U.S. leaders will avert the so-called fiscal cliff that could tip the economy into recession. President Barack Obama and House Speaker John Boehner are negotiating to end a budget stalemate and prevent spending cuts and tax increases totaling more than $600 billion that are set to start in January. Boehner is trying to sell a tax increase for top earners to fellow Republicans whose opposition to a higher levy for anyone is a central part of their pitch to the electorate. The speaker said the House will vote this week on a budget “plan B� that would raise tax rates on incomes exceeding $1 million a year. “There are more signs that we’ll avoid a complete drop off the fiscal cliff,� said Makoto Suzuki, a senior bond strategist in Tokyo at Okasan Securities Co. “There’s a short-term upside to bond yields, though they will remain low throughout next year.� Japan’s 10-year government bond yield added 2 1/2 basis points to 0.78 percent, according to Japan Bond Trading Co., the nation’s largest inter-dealer debt broker. That’s the most since Nov. 2. The MSCI Asia Pacific Index (MXAP) of shares rose 1.1 percent and touched the highest since Feb. 29, sapping demand for government bonds as safer assets. To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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