By Susanne Walker Dec. 23 (Bloomberg) -- Treasury 10-year notes gained for the first time in four days after a report showed spending by U.S. consumers rose less than forecast and purchases of new homes unexpectedly fell to a seven-month low in November. Ten-year note yields declined from their highest levels in four months as new home sales fell 11 percent and personal spending rose 0.5 percent, below the median forecast in a Bloomberg News survey for a 0.7 percent increase. The U.S. will sell a record-tying $118 billion of notes next week, according to Wrightson ICAP LLC, an economic advisory firm in Jersey City, New Jersey, before a Treasury announcement today. “Things have improved, but we are not on our way to a strong, sustainable recovery,” said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets New York, one of the 18 primary dealers that trade with the central bank. “Higher yields brought in some interest.” The benchmark 10-year note yield fell five basis points to 3.71 percent at 10:06 a.m. in New York, according to BGCantor Market Data. It earlier touched 3.77 percent, the highest level since Aug. 11. The 3.375 percent security due November 2019 rose 13/32, or $4.06 per $1,000 face amount, to 97 9/32. The yield increased 23 basis points this week. Treasuries capped their steepest back-to-back decline since July yesterday after data showed sales of existing U.S. homes rose more than forecast, stoking speculation the recovery will fuel inflation. ‘Little Impetus’ Purchases of new homes dropped to an annual pace of 355,000 after a 400,000 rate in October that was lower than previously estimated, the Commerce Department said in Washington. Sales were projected to climb to a 438,000 annual pace, according to the median forecast in a Bloomberg survey. The increase in consumer spending was the sixth in seven months, the Commerce Department said today in Washington. The report also showed incomes climbed 0.4 percent, the biggest increase since May, and inflation cooled. The Fed’s preferred price measure, which is tied to spending patterns and excludes food and fuel, was unchanged in November from the previous month, the first time it didn’t increase this year. The gauge was up 1.4 percent from a year earlier, the same as in October. “Overall the data was softer than expected with downward implications for growth and little inflation pressure,” Ian Lyngen senior government bond strategist at CRT Capital Group LLC in Stamford, Connecticut, wrote in a note to clients. The Fed’s price gauge provides “little impetus for the FOMC to shift its policy from the ‘extended period’ stance.” Debt Auctions Fed officials on Dec. 16 left the target rate for overnight loans between banks in a range of zero to 0.25 percent and reiterated a pledge to keep the target at almost zero for an “extended period.” The U.S. may sell $44 billion in two-year notes on Dec. 28, $42 billion in five-year debt the next day and $32 billion in seven-year securities the day after that, according to Wrightson. A $44 billion two-year auction would match the record offerings of October and November. A $42 billion five-year sale and a $32 billion seven-year offering would equal the all-time highest issues set last month. “There is no doubt that the increasingly loud footsteps of new Treasury supply was partly behind the spike higher in Treasury rates seen in the past few days,” William O’Donnell, U.S. government bond strategist at primary dealer RBS Securities Inc. in Stamford, Connecticut, wrote in a note to clients. “It’s impossible to say if rates have backed up enough to bring in the buyers.” Less Money President Barack Obama is borrowing unprecedented amounts for spending programs. U.S. marketable debt increased to a record $7.17 trillion in November from $5.80 trillion at the end of last year. Efforts by the U.S. to cut its current-account deficit mean other nations accumulate fewer dollars through trade, leaving them with less money to buy Treasuries, Chinese central banker Zhu Min said on Dec. 17 at a forum in Beijing. “When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken,” Zhu said. The difference in yields between two- and 10-year notes widened to a record this week as investors speculated the recovery will reduce demand at debt sales. The spread increased to as much as 288 basis points yesterday and was 285 basis points today. The previous record of 281 basis points was reached on June 5, when Treasuries plunged after a government report showed the smallest decline in U.S. payrolls in eight months. Ten-year note yields touched 4 percent the following week, the highest level in 2009. Treasuries of all maturities have fallen 3.2 percent this year, according to Bank of America Merrill Lynch indexes. To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net.

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