By Wes Goodman Feb. 22 (Bloomberg) -- Treasury yields were near a six- week high as a rally in Asian stocks cut demand for the relative safety of government debt just as the U.S. prepared to sell a record $126 billion of securities. The “bias is for higher rates” in the Treasury market, strategists at Barclays Capital Inc. led by Ajay Rajadhyaksha in New York wrote to clients. Reports this week will show sales of homes and durable goods improved last month, economists said, raising speculation investors will demand greater yields to finance the national debt as the economy rebounds. “The deficits are going through the roof and the Treasury auctions are not getting any smaller,” said Hans Goetti, who oversees $10 billion in Asia as chief investment officer at LGT Bank in Liechtenstein (Singapore) Ltd., part of the bank for the wealthy owned by Liechtenstein’s royal family. “We’re bearish” on Treasuries, he said. The 10-year yield climbed one basis point to 3.79 percent as of 6:29 a.m. in London, according to data compiled by Bloomberg. The yield rose to 3.82 percent on Feb. 19, the highest since Jan. 11. The 3.625 percent security due February 2020 fell 3/32, or 94 cents per $1,000 face amount, to 98 21/32. MSCI’s Asia Pacific Index of shares rallied 2.5 percent, the biggest gain since November. Rates to Rise Ten-year rates will rise to 4.50 percent this year as the U.S. extends the maturity of its debt, Barclays said in its Feb. 19 report. The company is one of the 18 primary dealers that are required to bid at the government’s debt sales. The figure will be 4.14 percent by Dec. 31 according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. The government is scheduled to sell $8 billion of 30-year Treasury Inflation Protected Securities today. It will auction $44 billion of two-year debt tomorrow, $42 billion in five-year securities Feb. 24 and $32 billion of seven-year notes Feb. 25. The previous record for a single week was $123 billion in October. The U.S. budget deficit will expand to an unprecedented $1.6 trillion in the fiscal year ending Sept. 30, the government predicted Feb. 1. The TIPS auction will be the first sale of inflation- linked 30-year securities since 2001, when the Treasury stopped selling all so-called long bonds. The U.S. introduced a 20-year inflation-indexed bond in 2004, which it ceased selling last year to make room on its auction calendar for 30-year TIPS. Karthik Ramanathan, head of the Treasury’s debt management, said on Feb. 4 that the government will seek to extend the average maturity of its sales to reduce its dependence on short-term debt. Home Sales TIPS have returned 0.1 percent this year, versus 0.9 percent for conventional Treasuries, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. Sales of new homes rose 3.8 percent in January, following a 7.6 percent drop in December, according to a Bloomberg News survey of economists before the Commerce Department report on Feb. 24. Bookings for goods meant to last several years climbed 1.5 percent last month, a separate survey showed. The Commerce Department will issue the report Feb. 25. Japanese Buying China reduced its holdings of Treasuries by a record amount in December while Japan increased its stake. Purchases by Fukoku Mutual Life Insurance Co., Mizuho Asset Management Co. and Daiwa SB Investments Ltd. helped push Japan’s holdings to $768.8 billion, an increase of $11.5 billion. U.S. government debt held by China fell $34.2 billion to $755.4 billion, Treasury Department figures showed Feb. 16. Increased buying from a country that has lived through a decade of recessions and deflation indicates Treasuries are a relative bargain, with consumer prices in check and savings rates rising. Investors in Japan, where households have built up 1,400 trillion yen ($15.3 trillion) of financial assets, are attracted by U.S. yields that reached the highest since 2007 compared with Japanese government bonds. “When the yield is high, people buy,” said Satoshi Okumoto, an investment manager in Tokyo for Fukoku, which oversees the equivalent of more than $60 billion. “The prospect for inflation is quite limited. Consumer demand is limited” in the U.S., he said. The insurer bought as yields on 10-year Treasuries rose to 2.55 percentage points above those on similar-maturity Japanese bonds in December, the most in two years, he said. While the spread shrank to 2.46 percentage points today, it’s still about 40 basis points above the average in that period. Investors became more bearish on U.S. government debt last week, according to a survey of money managers by Ried Thunberg ICAP Inc. The company’s index measuring the outlook for Treasuries through the end of March fell to 44 for the seven days ended Feb. 19 from 45 in the prior period. A figure less than 50 shows investors expect prices to fall. The company, in Jersey City, New Jersey, interviewed 26 fund managers controlling $1.4 trillion. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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