By Wes Goodman Nov. 24 (Bloomberg) -- Treasuries rose, extending this month’s gains, as Asian stocks fell and economists said a report will show U.S. gross domestic product growth is slow enough to keep the Federal Reserve from raising interest rates. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., increased government-related securities to 63 percent of assets in October, the most since July 2004. The U.S. is scheduled to sell a record $42 billion of five-year notes today, after a two-year auction yesterday drew the lowest yield ever. “Treasuries are still the safe bet,” said Geoff Howie, an economist and broker at MF Global Singapore Ltd., part of the world’s largest broker of exchange-traded futures and options contracts. “The economy is going to take a long time to get better. You’ve got no inflation threat so you don’t have to raise interest rates.” The 10-year note yield fell two basis points to 3.33 percent as of 6:22 a.m. in London, according to data compiled by Bloomberg. The 3.375 percent security maturing in November 2019 rose 5/32, or $1.56 per $1,000 face amount, to 100 11/32. MSCI’s Asia Pacific Index of regional shares dropped 0.7 percent, after gaining yesterday. Treasuries returned 0.5 percent in November, according to indexes compiled by Bank of America’s Merrill Lynch unit. Slower Growth Ten-year notes have a real yield, or what investors get after accounting for costs in the economy, of 3.53 percent, versus the five-year average of 1.49 percent. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, was 2.19 percentage points, in line with the five-year average. The U.S. economy expanded at an annual rate of 2.8 percent in the third quarter, versus the 3.5 percent pace reported Oct. 29, according to the median forecast in a Bloomberg News survey of economists. The Commerce Department report releases the data today. Gross boosted his $192.6 billion Total Return Fund’s investment in Treasuries, so-called agency debt and other U.S. government-linked bonds from 48 percent of assets in September. He reduced his position in mortgages to the smallest since May 2004, according to Pimco’s Web site yesterday. The five-year notes scheduled for sale today yielded 2.22 percent in pre-auction trading, versus 2.388 percent at the last sale on Oct. 28. Investors bid for 2.63 times the amount of debt offered last month, the most in two years. Indirect bidders, the category of investors that includes foreign central banks, purchased 54.8 percent of the notes. The average for the past 10 sales is 44.4 percent. Housing Market Five-year notes have returned 0.3 percent in 2009, versus a 2 percent decline for the whole Treasury market, according to Merrill Lynch. The U.S. auctioned $44 billion of two-year debt yesterday at 0.802 percent. The Treasury will finish this week’s sales with $32 billion of seven-year securities tomorrow. Signs of improvement in the U.S. housing market, the source of the global recession, are prompting concern that demand for the relative safety of government securities will wane just as the U.S. sells unprecedented amounts of debt. Home prices in 20 U.S. cities fell in September at the slowest pace in almost two years, economists said before a private report today. “The huge supply is negative” for Treasuries, said Kei Katayama, who oversees $1.6 billion of non-yen debt in Tokyo as leader of the foreign fixed-income group at Daiwa SB Investments Ltd., part of Japan’s second-biggest investment bank. “I don’t see that much weakness in the U.S. economy.” Yields to Climb Benchmark 10-year yields will climb to 3.56 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Investors should bet against two-year notes, JPMorgan Chase & Co. said Nov. 20. The company is one of the 18 primary dealers required to bid at the government auctions. “We view front-end yields as unsustainable near current levels,” wrote JPMorgan fixed-income analysts, led by Srini Ramaswamy in New York. “We remain bearish” on Treasuries. Government securities are headed for a loss in 2009, even after accounting for a winning month in November, as the economy began growing following a yearlong contraction. U.S. corporate bond sales reached an annual record of $1.171 trillion as borrowers took advantage of low interest rates. Sales of investment-grade and high-yield, high-risk debt compare with the more than $1.167 trillion that companies sold in all of 2007, the previous record, according to data compiled by Bloomberg. ‘Extended Period’ The Fed is scheduled to publish the minutes of its Nov. 4 meeting today, after pledging at the session to keep interest rates near zero for an “extended period.” A separate report today may show consumer confidence slipped this month. Gross said in his December investment outlook last week that the “systemic risk” of new asset bubbles is rising with the Fed keeping interest rates at record lows. Under what Pimco has termed the “new normal,” investors should be prepared for lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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