Treasury 10-year notes yielded about a quarter percentage point more than U.S. inflation, after falling below the consumer-price rate as recently as March, before the U.S. sells $24 billion of the securities today. A $32 billion three-year auction yesterday drew bids for 3.38 times the amount of debt offered, compared with an average of 3.57 for the previous 10 sales. The notes yield 0.35 percent, versus the 1.5 percent pace for consumer prices as of March. “The auction will be OK, better than the three-year sale,� said Kei Katayama, who buys non-yen debt in Tokyo for Daiwa SB Investments Ltd., which manages the equivalent of $50.8 billion. “Treasuries are expensive, but yields are also low in other countries.� Benchmark 10-year rates were unchanged today at 1.78 percent as of 1:14 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The price of the 2 percent security due February 2023 was 101 31/32. U.S. 10-year yields have matched the pace of consumer-price gains for the past year on average, according to data compiled by Bloomberg. The yield has climbed from this year’s low of 1.612 percent set last week. It jumped 11 basis points on May 3 after a U.S. report showed employers took on more workers in April than economists predicted and the unemployment rate unexpectedly fell to a four-year low of 7.5 percent. Japan’s 10-year rate was little changed at 0.6 percent, rising from the record low of 0.315 percent set last month. German 10-year notes yielded 1.30 percent. Treasury yields still aren’t high enough to get Daiwa SB to buy, Katayama said. Daiwa SB holds fewer of the bonds than the percentage in the index it uses to gauge performance, he said. Term Premium The 10-year term premium, a model that includes expectations for interest rates, growth and inflation, was at minus 0.735 percent yesterday, the closest to zero since April 2. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The last 10-year sale on April 10 drew bids for 2.79 times the amount of debt available. The average for the past 10 sales including April’s is 2.92. U.S. 10-year notes have returned 0.5 percent this year, according to Bank of America Merrill Lynch indexes. Three-year securities gained 0.2 percent and 30-year bonds dropped 0.7 percent. The government is scheduled to conclude this week’s auctions with a $16 billion 30-year sale tomorrow. Bidding Slows Bidding has slowed at Treasury auctions this year, with the $753 billion in debt sales attracting an average of $3.02 in orders to buy per dollar of debt sold, compared with a record $3.15 in 2012, according to data released by the Treasury and compiled by Bloomberg. Investors should favor stocks over bonds, said David Kelly, the New York-based chief global strategist at JPMorgan Funds, part of the biggest U.S. bank. “Invest in a way that protects you against rising interest rates because we will eventually see those,� Kelly said yesterday on Bloomberg Television’s “In the Loop� with Deirdre Bolton and Dominic Chu. Yields will rise when the Federal Reserve signals it is planning to trim its bond purchase program, he said. The central bank is buying $85 billion of Treasury and mortgage debt a month to support the economy by putting downward pressure on borrowing costs. “It could happen as early as later on this year, maybe in September, maybe even before then, if the economy perks up a little bit over the next few months,� Kelly said. 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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