By Wes Goodman Feb. 8 (Bloomberg) -- Treasuries snapped a two-day rally as the U.S. prepared to sell a record-tying $81 billion of notes and bonds in three auctions starting tomorrow. The Treasury will offer $2.43 trillion of government securities this year, the most ever and a 16 percent increase from 2009, according to the average forecasts of 10 bond-trading companies. U.S. officials said last week that they’ve increased the auction sizes enough to fund the budget deficit. “Supply has peaked, but it still requires demand to stay quite large,” said Roger Bridges, who oversees about $10.4 billion of debt in Sydney at Tyndall Investment Management Ltd., a unit of Australia’s third-largest insurer. “They keep on borrowing. It’s still at a record level.” The yield on the benchmark 10-year note rose one basis point to 3.58 percent as of 12:45 p.m. in Tokyo, according to data compiled by Bloomberg. The 3.375 percent security maturing in November 2019 declined 3/32, or 94 cents per $1,000 face amount, 98 10/32. Ten-year yields will advance to 4.14 percent by the end of the year, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. Bridges said he is holding fewer Treasuries than the percentage in the benchmark he uses to gauge performance. The Treasury will sell $40 billion in three-year notes tomorrow, $25 billion of 10-year securities on Feb. 10 and $16 billion of 30-year bonds on Feb. 11. Worsening Finances Treasuries rose last week, pushing 10-yields to the lowest level since December, on speculation worsening government finances in Greece, Portugal and Spain will slow the global economy and make it harder for companies to meet debt payments. Greece is trying to persuade financial markets it can restrain the European Union’s largest budget shortfall without outside assistance, while borrowing costs are also climbing for Portugal and Spain. Credit-default swaps on the debt of all three countries rose to record highs last week, increasing demand for the relative safety of U.S. government securities. Credit-default swaps are contracts designed to protect against or speculate on default. The extra yield investors demand to own corporate debt instead of government bonds widened four basis points last week to 169 basis points, the most since the period ended Nov. 27, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index. ‘Have to be Bullish’ “You have to be bullish on Treasuries,” said Geoff Howie, an economist at MF Global Singapore Ltd., part of the world’s largest broker of exchange-traded futures and options. “The debt problems in Europe are another sign that the developed world is still in trouble. You’ve got to start creating jobs before mom and dad in America will start taking on risk.” Ten-year yields may fall to 3.45 percent by the end of March, he said. The U.S. is in no danger of losing its Aaa debt rating, Treasury Secretary Timothy F. Geithner said in an ABC News interview broadcast yesterday. Former Federal Reserve Chairman Alan Greenspan said it is “very difficult” to see U.S. unemployment falling soon, speaking yesterday on NBC’s “Meet the Press” program. The Treasury’s decision to stop increasing its debt sales may bolster the economy just as the Fed withdraws emergency spending measures. Restricting growth in the auction sizes will cause the difference in yields between 2- and 10-year notes to shrink to 2.15 percentage points by year-end from the record 2.90 percentage points last month, according to Bloomberg surveys of banks and securities firms. Mortgage Rates The so-called narrower yield curve may cap mortgage rates, which are pegged to 10-year Treasury note yields, as the central bank’s $1.25 trillion in mortgage-bond purchases end on March 31. It also would encourage banks that have relied on profiting from differences between short- and long-term rates to boost lending as the Fed tries to cut its stimulus and lending programs. “The flatter the yield curve, the more apt banks are to lend, because they’re not making this huge carry,” said David Brownlee, head of fixed income at Sentinel Asset Management in Montpelier, Vermont, which oversees $22 billion. “The impact of mortgage rates on the housing market is going to be benefited by a flatter curve.” Ried Thunberg ICAP Inc.’s index measuring the outlook for Treasuries through the end of March fell to 42 for the seven days ended Feb. 5 from 43 the week before. A figure less than 50 shows investors expect prices to fall. The company, in Jersey City, New Jersey, interviewed 22 fund managers controlling $1.2 trillion. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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