By Wes Goodman March 12 (Bloomberg) -- Treasuries headed for a second weekly loss before an industry report that analysts said will show U.S. consumer confidence rose as the economy improved, helping spur demand for higher-yielding assets. U.S. government securities fell this month after Greece implemented measures to reduce the European Union’s largest budget deficit. The Treasury Department sold $74 billion of three-, 10- and 30-year debt this week as President Barack Obama borrows record amounts to sustain the economic revival. “We are probably going to see further increases in Treasury yields,” said Elwin de Groot, a senior market economist at Rabobank Groep in Utrecht, Netherlands. “There’s still going to be a lot of supply. We’ve already seen European countries taking austerity measures but at the other side of the Atlantic, this is still not a major focus.” The benchmark 10-year note was unchanged at 3.73 percent at 8:39 a.m. in London, according to data compiled by Bloomberg. The 3.625 percent security due February 2020 traded at 99 5/32. The yield has climbed 11 basis points in two weeks. Yields will rise to 4.15 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. The Reuters/University of Michigan consumer sentiment index is expected to advance to 74 for March from 73.6 last month, according to a Bloomberg News survey of economists. Separate reports today may show retail sales fell and business inventories rose, Bloomberg surveys show. Inflation Bets “Yields will go up,” said Takashi Yamamoto, Singapore- based chief trader at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest lender. “I don’t think the U.S. economy is in trouble. The Federal Reserve will move closer to hiking interest rates.” Traders added to bets on inflation for a second week. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer-price gains, widened to 2.26 percentage points today from 2.16 percentage points on Feb. 26. Treasuries handed investors a 0.6 percent loss this month, while German bunds fell 0.4 percent, according to indexes compiled by Bank of America Corp. Greece’s measures to cut its budget eased demand for the safety provided by these AAA rated bonds. Japanese government debt was little changed. U.S. corporate securities returned 0.4 percent, the Bank of America indexes showed. German two-year notes yield 1.05 percent, or 10 basis points more than similar-maturity Treasuries, down from 62 basis points in November. The spread is the least since 2007. ‘Time to Buy’ Investors should favor German bunds, and the premium demanded to hold 10-year Treasuries instead of similar-maturity German securities may almost double to about 100 basis points in the next six months, according to Rabobank’s de Groot. Daiwa Securities Capital Markets Co., part of Japan’s second-largest brokerage, predicts Treasury yields will fall as unemployment holds near a 26-year high. “It’s a good time to buy Treasuries,” said Yasutoshi Nagai, chief economist for Daiwa Securities in Tokyo. “It’s difficult to find a job.” Ten-year yields will drop to 3.30 percent by mid-year, he said. The U.S. jobless rate was 9.7 percent in February, after rising to 10.1 percent in October, which was the most since 1983. The Senate on March 10 approved legislation to extend unemployment benefits as it tries to boost the economy. The bill goes to the House next. Treasuries are “clearly still an attractive alternative to equities,” Geoff Howie, an economist at MF Global Singapore Ltd., wrote in a report today. Howie’s target for 10-year yields is 3.56 percent, according to his report, matching this year’s low based on closing levels. Auction Results The MSCI World index of shares has risen 4.5 percent this month. It gained 1.2 percent in February, after falling 4.2 percent in January. Treasury 30-year bonds gained yesterday as one of the biggest yield premiums over two-year notes on record bolstered demand at a $13 billion auction of the 2040 securities. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.89, the highest level since September. Securities companies and money managers that aren’t in the Fed’s network of primary dealers, known as direct bidders, bought 29.6 percent of the debt on sale at the auction, the most since the government resumed sales of 30-year bonds in 2006. ‘Relative Value’ “Insurers, pension funds and other investors continue to buy the 30-year because of its outright yield and its relative value,” said Thomas Tucci, head of U.S. government bond trading in New York at Royal Bank of Canada, one of the 18 primary dealers required to bid at Treasury auctions. “There is just little value in the front end versus the long bond.” The sale also marked the first time since the bond was reissued that direct bidders bought more than indirect bidders, the investor class that includes foreign central banks. Indirect bidders accounted for 23.9 percent of the auction. The 30-year bond yielded 4.67 percent, or 3.72 percentage points more than two-year yields. The spread was 3.85 percentage points on Feb. 17, the most since Bloomberg data tracking the figures started in 1980. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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