By Wes Goodman Jan. 19 (Bloomberg) -- Treasury 10-year yields were near the lowest level in four weeks before a government report today that economists said will show international demand for U.S. securities increased in November. Yields will fall as global economic growth slows, according to Mike Zelouf, London-based director of international business at Western Asset Management Co. Investors outside the U.S. bought a net $27.5 billion of the nation’s long-term notes, bonds and stocks, up from $20.7 billion in October, according to a Bloomberg survey of economists. Foreign investors have added to their Treasury holdings for six straight months. “I expect they bought more,” said Peter Jolly, the Sydney-based head of market research for the investment-banking unit of National Australia Bank Ltd., the nation’s largest lender as measured by assets. “The U.S. government deficit is so large. They are increasingly reliant on foreigners to take on that debt.” The 10-year note yielded 3.67 percent as of 2:40 p.m. in Tokyo, according to BGCantor Market data. The price of the 3.375 percent security due November 2019 rose 1/32, or 31 cents per $1,000 face amount, to 97 17/32. Ten-year yields, a benchmark for consumer and corporate borrowing costs, declined to 3.66 percent on Jan. 15, the lowest level since Dec. 21. U.S. 30-year fixed mortgage rates fell to 5.15 percent from 5.37 percent on Dec. 28, which was the most since August, according to Bankrate.com in North Palm Beach, Florida. President Barack Obama is depending on investors outside the U.S., who hold about half of the nation’s record $7.27 trillion in marketable debt, as he borrows record amounts to fund government deficits and economic-stimulus plans. Rescue Plan The government’s $787 billion economic rescue plan contributed to the record $1.4 trillion deficit in fiscal year 2009, which ended in September. “Western Asset does not expect a long period of recovery,” Zelouf, who helps oversee $506.4 billion, wrote in a press release today. Long-term yields will fall faster than those on shorter maturities, he wrote. The opposite has been true this year. Ten-year notes yielded 2.80 percentage points more than two-year Treasuries, after the spread widened to a record 2.90 percentage points on Jan. 11. Two-year rates tend to track the Fed’s target for overnight lending because of their shorter maturity. Yields on longer-term bonds are more influenced by inflation and by the size of the government’s debt. Short Positions Hedge-fund managers and other speculators in the futures market increased bets to the highest level since 2005 that bonds will decline. Speculative short positions outnumbered longs by 190,708 contracts in the period ended Jan. 12, the Washington-based Commodity Futures Trading Commission said Jan. 15. It was the highest margin of net shorts, or bets that prices will fall, since there were 196,675 contracts on April 19, 2005. Yields were unchanged at 4.25 percent in the week ended April 22, 2005. “Worries about large bond issuance were probably the main factor behind those short positions,” said Kazuaki Oh’e, a bond salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-largest lender. “The positions are unlikely to expand in the near term and we may see a short-covering early this week.” In short-covering, investors end bets that an asset will decline. Hedge Funds The CFTC publishes aggregate numbers each Friday for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves. Analysts and investors follow changes in these positions because such transactions can reflect an expectation of a change in prices. European governments are also increasing the amounts they borrow, and the deluge that left investors with the lowest relative returns since 1995 will continue for seven years, say officials from Frankfurt to Dublin to Helsinki. A Bloomberg survey of 11 euro-area finance officials showed that eight forecast it will take at least until 2015 to bring the region’s debt sales down to the levels before the collapse of Lehman Brothers Holdings Inc. in September 2008. Four said it may require as much as a decade. The average prediction was that bond sales won’t return to those levels until 2017. ‘Take a While’ “Bond issuance in the region might start to come down from 2011, but to drop to pre-crisis levels may take a while,” said Carl Heinz Daube, head of Germany’s Federal Finance Agency in Frankfurt. “There might be some risks of economic dips down the road. Revenue is probably not going to rise substantially, but expenditures will stay high.” The forecasts suggest European bonds may lag behind corporate securities for at least another year as public debt swells to 85 percent of gross domestic product this year, from 65 percent before the financial crisis began in 2007, according to Citigroup Inc. estimates. Bonds returned less than 2 percent in 2009 as sales increased 36 percent to 870 billion euros ($1.25 trillion). They’ll jump another 15 percent to a record 1 trillion euros this year, according to HSBC Holdings Plc, Europe’s biggest bank by market value. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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