By Matthew Brown and Wes Goodman Dec. 1 (Bloomberg) -- Treasuries fell, with 10-year notes dropping for the first time in six days, as stocks rose and Dubai began talks to restructure its debt, sapping demand for the safety of fixed income. The declines drove the yield on the 10-year note up from within 4 basis points of the lowest level in almost two months as the MSCI World Index advanced for a second day. Dubai World said it began “constructive” talks with banks to restructure $26 billion of debt. Treasuries also fell as China’s manufacturing grew last month at the fastest pace in five years and Australia’s central bank cited the speed of the recovery as a reason for its third straight interest-rate increase. “Treasuries received a massive bid on the back of the Dubai story last week and that seems to be calming down,” said Peter Schaffrik, an interest-rate strategist in London at Commerzbank AG, Germany’s second-largest lender. “Treasuries are likely to play a tad softer throughout the week.” The yield on the 10-year note rose 3 basis points, or 0.03 percentage point, to 3.23 percent as of 9:22 a.m. in London, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 fell 9/32, or $2.81 per $1,000 face amount, to 100 7/32. The yield fell to 3.15 percent on Nov. 27, the lowest level since Oct. 2. Dubai World is seeking to delay payments on less than half its $59 billion of obligations, damping concern that a potential default may set back the global financial system’s recovery from the credit crisis. Shares Gain Treasuries have lost investors 1.1 percent in 2009, heading for their first losing year in a decade, on signs the global economy is recovering from the biggest recession since World War II, according to indexes compiled by Bank of America’s Merrill Lynch & Co. unit. U.S. corporate bonds returned 26 percent, the Merrill indexes show. The MSCI World Index of shares rose 0.9 percent, while the Dow Jones Stoxx 600 of European shares rose 1.9 percent. The MSCI index has gained 68 percent since it fell to a 13-year low on March 9. “In China and Asia generally, where financial sectors are not impaired, recovery has been much quicker to date and prospects appear to be for good growth in 2010,” Reserve Bank of Australia Governor Glenn Stevens said today. China’s purchasing managers’ index released today by HSBC Holdings Plc rose to a seasonally adjusted 55.7 from 55.4. The government’s PMI, also released today, held at an 18-month high. “There appears to be a gradual return to normality, with the situation in Dubai stabilizing,” said Jason Simpson, a fixed-income strategist at Royal Bank of Scotland Group Plc in London. Record Auctions Investors will cut government bond holdings as record auctions damp prices, said Pacific Investment Management Co., which runs the world’s biggest bond fund. Demand for higher-quality corporate debt will increase as “excessive optimism” about a global recovery wanes, John Wilson, head of Pimco’s Australian unit, said in a statement today. The U.S. is scheduled to announce in two days’ time how much it plans to raise by selling three-year notes on Dec. 8, 10-year notes on Dec. 9 and 30-year bonds on Dec. 10. Ten-year yields will rise to 3.49 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Two-year rates will climb to 1 percent, from 0.66 percent today, the survey showed. Investors are demanding higher yields to invest in 30-year bonds after the Treasury Department announced on Nov. 4 plans to extend the average maturity of the U.S. debt. Thirty-year bonds yielded 4.19 percent, or 99 basis points more than 10-year notes today, the most since May. Reports today will show manufacturing expanded in the U.S. while German retail sales increased, based on surveys of economists by Bloonberg. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net

Source