By Wes Goodman March 4 (Bloomberg) -- Treasuries rose, sending yields toward a three-week low, as declines in Asian stocks increased demand for the relative safety of U.S. debt. The longest maturities led the gain after Morgan Stanley Asia Chairman Stephen Roach said the U.S. economic recovery is “crummy.” A Labor Department report tomorrow will show the U.S. lost jobs and the unemployment rate increased last month, according to Bloomberg News surveys of economists. “The U.S. employment situation is very fragile and it will probably drag on the recovery,” said Hiromasa Nakamura, a senior investor who helps oversee the equivalent of $21.1 billion in Tokyo at Mizuho Asset Management Co., part of Japan’s second-largest bank by assets. “The recovery may slow down, which means yields will decline.” The yield on the benchmark 10-year note fell two basis points to 3.60 percent as of 6:46 a.m. in London, according to BGCantor Market Data. Yields declined to 3.58 percent on Feb. 26, the lowest since Feb. 9. The 3.625 percent security due February 2020 climbed 6/32, or $1.88 per $1,000 face amount, to 100 7/32. MSCI’s Asia Pacific Index of shares declined 0.5 percent, snapping a four-day gain. Ten-year yields may fall to 3.2 percent by the end of June, Nakamura said. If he’s right, investors who buy the debt today would make a 4.4 percent return, Bloomberg calculations show. U.S. Payrolls U.S. payrolls fell by 65,000 last month after declining 20,000 in January, according to a Bloomberg News survey before the Labor Department report tomorrow. The jobless rate rose to 9.8 percent from 9.7 percent, a separate survey showed. Consumer spending will only increase modestly as households pay down debt, Morgan Stanley’s Roach said in interview with Bloomberg Television. The Treasury is scheduled to announce today the size of three-, 10- and 30-year auctions next week. It will probably sell $40 billion of three-year notes on March 9, $21 billion in 10-year debt the following day and $13 billion of 30-year bonds on March 11, according to estimates from Wrightson ICAP LLC, an economic advisory firm in Jersey City, New Jersey. The TED spread, the difference between what banks and the U.S. government pay to borrow for three months, was near a six- year low as Greece’s efforts to balance its budget increased confidence in the lending markets. “Spreads are getting tighter,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest lender. “There is more room to improve. The Greece situation is getting better.” TED Spread The TED spread was 12 basis points, after narrowing to 11.7 basis points yesterday, the least since June 2003. The gap widened to 4.64 percentage points in October 2008 when the global financial crisis froze money markets. The two-year swap spread, or the difference between a two- year fixed swap rate and the yield on a Treasury with the same maturity, narrowed as much as 22 basis points today. The figure, a gauge of credit risk, is less than 1 basis point away from a six-year low. The swap market is where investors exchange fixed for floating interest payments and vice versa. An index of corporate bonds around the world yields 1.66 more than benchmark government securities, the least in a month, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. Federal Reserve Chairman Ben S. Bernanke is trying to wind down last year’s emergency stimulus programs. U.S. home-loan rates may increase by 0.10 percentage point when the central bank stops buying mortgage-backed securities this month, according to Goldman Sachs Group Inc. The company is one of the 18 primary dealers that trade directly with the Fed. MBS Purchases U.S. 30-year fixed mortgage rates have fallen to 5.03 percent from last year’s high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida. To support mortgage lending and the housing market, the Fed is buying $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The central bank plans to complete the purchases this month, it said after its last meeting on Jan. 27. “An announcement to sell MBS -- which we believe will not occur for some time to come -- would likely result in a much bigger rise in mortgage rates of up to 80” basis points, New York-based Goldman Sachs analyst Sven Jari Stehn wrote in a report yesterday. A basis point is 0.01 percentage point. The Fed has kept its target for overnight lending in a range of zero to 0.25 percent since December 2008 to combat a global recession. Interest-rate futures on the CME Group Inc. exchange showed a 30 percent chance U.S. policy makers will raise the benchmark target rate for overnight loans by at least a quarter percentage point by September. The odds were 37 percent as week ago. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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