By Bo Nielsen and Wes Goodman Aug. 20 (Bloomberg) -- Treasuries were little changed before industry and government reports that economists say will show an index of leading indicators rose and U.S. jobless claims declined last week. Ten-year note yields traded near five-week lows even as futures on the Standard & Poor’s 500 Index rose 0.2 percent and global stocks recovered from yesterday’s declines. Yields on shorter-term debt gained as the U.S. prepared to announce how much it plans to raise in sales of 2-, 5- and 7-year debt next week. “Rebounding stock markets and the supply are keeping the Treasury market on the back foot,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets, a broker for banks and investors. “We may have seen the lows in 10-year yields for now.” The yield on the 10-year note rose one basis point, or 0.01 percentage point, to 3.47 percent at 7:33 a.m. in New York, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 fell 2/32, or 63 cents per $1,000 face amount, to 101 9/32. Yields touched 3.40 percent yesterday, the lowest level since July 14. They may advance to 3.55 percent this week, Stamenkovic said. Yields will rise to 3.79 percent at year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Stocks, Indicators China’s Shanghai Composite Index advanced 4.5 percent, after sliding 4.3 percent yesterday, helping the MSCI World Index to rise 0.6 percent for its third daily advance. Futures on the Standard & Poor’s 500 Index climbed 0.2 percent. The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.7 percent for a second month, according to the median forecast of 52 economists surveyed by Bloomberg News. New applications for unemployment benefits dropped to 550,000 last week from 558,000 the week before, according to economists surveyed. Both reports are scheduled for release today. “We find Treasuries unattractive,” said Satoshi Okumoto, a general manager at Fukoku Mutual Life Insurance Co. in Tokyo, which has the equivalent of $60.5 billion in assets. “We’re not as negative as before on the economy. There will be a huge amount of supply.” Treasuries have handed investors a 3.6 percent loss this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as investors sought higher-yielding assets and the economy began to recover from its steepest recession in 50 years. Auction Sale The Treasury Department will probably announce a $112 billion auction package for next week, increasing from $109 billion at the last sales of the securities in July, according to Wrightson ICAP LLC, a Jersey City, New Jersey, research company that specializes in government finance. When the U.S. raised $75 billion last week, a group that includes international investors purchased a record amount of 3- year notes, the biggest share of 10-year notes since 2005 and almost half of the 30-year bonds sold, according to Treasury data. China is America’s largest creditor, holding $776.4 billion of the U.S.’s $6.78 trillion of marketable debt. The world’s most populous nation boosted U.S. government debt 6.7 percent this year after a 52 percent increase in 2008, figures from the Treasury Department show. Its holdings fell by 3.1 percent in June from May, the figures show. China has no choice but to buy more Treasuries for now, an official newspaper said today, Reuters reported. “The U.S. is ever more in hock to foreign demand,” Societe Generale SA analysts including Ciaran O’Hagan in Paris wrote in a note today. “A buyers’ strike has the potential to be a systemic event. Luckily there is still good appetite for U.S. debt.” Goldman Sachs Chinese investors need time to learn to handle a more diverse range of assets before cutting U.S. debt, the People’s Daily said, according to the report. Losses on foreign currency investments show China lacks the expertise to manage a more complex portfolio, the newspaper said, according to Reuters. Goldman Sachs Group Inc., one of the 18 primary dealers required to bid at the government bond auctions, yesterday said demand for Treasuries will be “enough” to cover the government’s record sales of debt. Purchases by foreign investors will be augmented by appetite from U.S.-based buyers looking to add to savings or increase the duration of their assets, Michael Vaknin, an analyst for Goldman Sachs in London, wrote in a note to clients. The Federal Reserve bought $2.599 billion of Treasuries due from February 2021 to February 2026 yesterday, part of its plan to cap consumer borrowing costs. Fed Purchases The central bank announced plans to buy debt three times over the next two weeks, down from four times per two-week period. Policy makers said last week they plan to slow the pace of the purchases of Treasuries as the recession eases and signaled that the $300 billion program will end in October. The buying was previously scheduled to end in September. “We’ve been shifting from the longer end since the beginning of the year,” said Masataka Horii, one of four investors for the $47 billion Kokusai Global Sovereign Open fund in Tokyo, Asia’s biggest bond fund. “Long-term maturities will become less attractive if the Fed stops buying. People may become more concerned about supply.” Yields indicate investors are adding to bets on inflation. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, widened to 1.77 percentage points from 1.73 percentage points at the end of last week. The spread has averaged 2.20 percentage points for the past five years. To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

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