By Anna Rascouet and Wes Goodman Nov. 24 (Bloomberg) -- Treasuries were little changed as stocks fell around the world and investors speculated a report will show U.S. 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 yesterday’s two-year auction drew the lowest yield ever. The Fed will publish minutes from its November meeting, when it specified rates will stay unchanged as long as inflation expectations are stable. “Today’s U.S. data could underpin speculation that the Fed will not reverse monetary policy until later next year,” Ulrich Wortberg, a fixed-income strategist at Helaba Landesbank Hessen- Thueringen in Frankfurt wrote in a note today. “Rate hike speculation will be suppressed.” The 10-year note yield traded at 3.35 percent at 7:20 a.m. in New York, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 was at 100 7/32. The MSCI World Index of shares fell 0.2 percent. 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. The Commerce Department report releases the data today. A separate report today may show consumer confidence slipped this month. ‘Perhaps Later’ Charles Evans, president of the Fed Bank of Chicago, told the Financial Times yesterday that U.S. interest rates may stay near zero until “late 2010, perhaps later in terms of 2011.” 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 2.21 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. 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. Unsustainable Yields 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. 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, the analysts wrote. Headed for Loss 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. To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.netWes Goodman in Singapore at wgoodman@bloomberg.net.

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