By Daniel Kruger Oct. 27 (Bloomberg) -- Treasuries rose for the first time in five days as confidence among U.S. consumers unexpectedly fell in October for a second month. Government securities gained as the Conference Board’s confidence index dropped to 47.7 from a revised 53.4 in September and a measure of employment availability deteriorated to a 26-year low. The U.S. prepared to sell an all-time high $44 billion of two-year notes, the second of four auctions this week for a record $123 billion. “People are losing faith in the economy,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “Jobs aren’t being created. They drive the consumer. That’s having a very adverse impact.” The yield on the 10-year note fell four basis points, or 0.04 percentage point, to 3.51 percent at 10:53 a.m. in New York, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 rose 10/32, or $3.13 per $1,000 face amount, to 100 29/32. The two-year note yield fell three basis points to 0.99 percent. Economists forecast confidence would increase to 53.5 from a previously reported 53.1 for September, according to the median of a Bloomberg News survey. ‘Rage, Rage’ Pacific Investment Management Co.’s Bill Gross said the six-month rally in riskier assets is likely at its pinnacle, with U.S. economic growth to lag behind historical averages. “Investors must recognize that if assets appreciate with nominal gross domestic product, a 4-5 percent return is about all they can expect even with abnormally low policy rates,” Gross wrote. “Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets -- while still continuously supported by Fed and Treasury policy makers -- is likely at its pinnacle.” The share of consumers who said jobs are plentiful dropped to 3.4 percent from 3.4 percent, the Conference Board report said. The proportion of people who said jobs are hard to get increased to 49.6 percent, the highest level since May 1983, from 47 percent. President Barack Obama has increased U.S. marketable debt to a record $7.01 trillion as he borrows unprecedented amounts to battle the steepest recession since the 1930s. Record Sales Total sales of Treasuries will increase to $2.38 trillion in the fiscal year that began Oct. 1, from $1.81 trillion in the prior 12 months, Goldman Sachs Group Inc. said in a report on Oct. 20. Goldman Sachs, based in New York, is one of the 18 primary dealers that are required to bid at the government debt auctions. The sizes of this week’s sales are raising speculation investors will demand higher yields before bidding. “There’s too much supply,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking, a unit of Japan’s biggest bank. “There is a little more room for yields to rise.” The two-year notes scheduled for sale today yielded 1.059 percent in pre-auction trading, versus 1.034 percent the last time the securities were sold on Sept. 22. Investors bid for 3.23 times the amount of debt on offer last month, the most since September 2007. Indirect bidders, the category of investors that includes foreign central banks, purchased 45.2 percent of the notes, versus an average of 42.6 percent for the past 10 sales. Weak Dollar Bubble Two-year notes have returned 0.9 percent in 2009, versus a 3.4 percent loss for the whole Treasury market, according to indexes compiled by Merrill Lynch. Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini. “We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.” The dollar has dropped 13 percent in the past year against a basket of six major currencies as the Federal Reserve, led by Chairman Ben S. Bernanke, cut interest rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s. Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said. Inflation Expectations Yields indicate government borrowing has increased inflation expectations this year. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, widened to 2.01 percentage points from almost zero at the end of 2008. It is still less than the five-year average of 2.18 percentage points. The U.S. sold $7 billion of five-year TIPS yesterday at a yield of 0.769 percent, dropping from 1.278 percent at the prior auction in April. Investors bid for 3.10 times the amount of debt available, the most since 1997. To contact the reporter on this story: Daniel Kruger in New York at dkkruger1@bloomberg.net.

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