By Cordell Eddings and Susanne Walker Nov. 12 (Bloomberg) -- Treasuries rose as stocks fell and the U.S. prepared to sell a record $16 billion of 30-year bonds, the final of this week’s three auctions totaling $81 billion. The difference between two- and 30-year yields was at 3.58 percentage points, near the most since July, and up from 1.91 percentage points on Dec. 31. Yields on long-term bonds rose this year as the U.S. increased debt sales, while shorter-term notes are anchored by the Federal Reserve’s record-low rate. The dollar rose against most of its major counterparts. “The Fed is on hold, stocks are weaker, inflation is non- existent and the dollar’s weakness is still attracting foreign money into the Treasury market,” said Kevin Giddis, head of fixed-income sales, trading and research at brokerage firm Morgan Keegan Inc. in Memphis. Tennessee. “With no other news we’ll trade off the success or failure of the auction.” The 10-year note yield fell two basis points, or 0.02 percentage point, to 3.47 percent at 12:01 p.m. in New York, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 rose 6/32, or $1.88 per $1,000 face amount, to 99 7/32. Yields on debt maturing in 30 years fell one basis point to 4.39 percent. The bonds scheduled for sale today yielded 4.44 percent in pre-auction trading. ‘There’s Limitations’ The Standard & Poor’s 500 Index lost 0.7 percent, declining from a 13-month high, as oil and energy shares slid following bigger-than-estimated growth in crude stockpiles. The convergence of the 50-, 100- and 200-day moving averages on the gap between yields of Treasury 10- and 30-year securities suggests strong demand at today’s 30-year auction, according to Cantor Fitzgerald LP. The 93 basis point difference in yields between the securities is about 10 basis points more than the moving averages, which are converging at about 83 basis points, said George Goncalves, chief fixed-income rates strategist in New York at Cantor Fitzgerald, one of 18 primary dealers that are required to bid on the sale. “There’s limitations to the curve steepening move,” Goncalves said. “We have an auction, an actual event that can trigger a response, and you have all these technicals lining up that would suggest it has to find support.” Investors bid for 2.37 times the amount of 30-year bonds on offer at last month’s auction, versus an average of 2.39 times for the past 10 sales. Indirect bidders, which include foreign central banks, purchased 34.5 percent of the debt last month, versus the 10-sale average of 40.3 percent. ‘Some Interest’ “We are trading at higher yields, which could stimulate some interest in the auction, especially from absolute return investors,” said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. “The markets believe the Fed when they say ‘extended period,’ so the curve may offer some value further out.” The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.67 trillion of writedowns and credit losses at banks and other financial institutions and sent the global economy into its first recession since World War II, according to data compiled by Bloomberg. The Fed cut its target for overnight loans to a range of zero to 0.25 percent in December. It reiterated its pledge to keep borrowing costs at a record low for an “extended period” in a statement last week. The government sold $40 billion of three-year notes and $25 billion of 10-year debt earlier this week, both records, as President Barack Obama borrows unprecedented amounts to fund stimulus programs. U.S. marketable debt totals $6.95 trillion and reached $7.01 trillion in September, the most ever. ‘No End in Sight’ Treasury officials on Nov. 4 announced a long-term target of six to seven years for the average maturity of government debt. The average maturity is currently about 53 months, according to Treasury data, below the historical average of about five years. Sales of coupon-bearing Treasuries will increase to $2.38 trillion in the fiscal year that began Oct. 1, from $1.81 trillion in the prior 12 months, primary dealer Goldman Sachs Group Inc. said in a report on Oct. 20. The amounts are making some investors say today’s gains won’t last. “There’s no end to the Treasury sales in sight,” said Tsutomu Komiya, an investor in Tokyo at Daiwa Asset Management Co., which oversees $77 billion as part of Japan’s second- largest brokerage. “Supply will send bond yields higher.” 10-Year Yields Ten-year yields will rise to 4 percent by the end of 2010, he said. A Bloomberg survey of banks and securities companies projects the figure will be 4.22 percent, with the most recent forecasts given the heaviest weightings. The increase in long-term yields means bonds are lagging behind shorter securities. Two-year notes returned 1.4 percent in 2009, while 10-year securities handed investors a 7.4 percent loss and 30-year bonds tumbled almost 24 percent, based on indexes compiled by Merrill Lynch. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net. Lukanyo Mnyanda in London at lmnyanda@bloomberg.net.

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