By Lukanyo Mnyanda and 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, damping demand for the safety of fixed-income assets. U.S. government securities fell this month after Greece implemented measures to reduce its budget deficit, the European Union’s largest. 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. A failure by the U.S. to address its deficit may undermine investor confidence, Federal Reserve of New York President William Dudley said. “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 10:56 a.m. in London, according to data compiled by Bloomberg, leaving it 12 basis points higher in the past two weeks. The 3.625 percent security due February 2020 traded at 99 1/8. The Reuters/University of Michigan consumer sentiment index may advance to 74 for March from 73.6 last month, according to a Bloomberg News survey of 68 economists, signaling the U.S. recovery from the recession is on track. Separate reports today may show retail sales fell and business inventories rose, Bloomberg surveys show. Rising Yields Ten-year yields will rise to 4.15 percent by year-end as signs that the economy is strengthening prompt traders to bet that the Fed will move toward raising interest rates, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. “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 that inflation will accelerate as growth picks up, according to so-called breakeven rates. 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. It was 2.16 percentage points two weeks ago. Treasuries Versus Bunds 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-Merrill Lynch. Japanese government debt was little changed. The premium investors demand to hold 10-year U.S. notes instead of similar-maturity German bunds was at 54 basis points, up from 38 basis points on Jan. 21. That may 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” for U.S. workers. 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. Stock Gains The MSCI World Index of shares has risen 4.2 percent this month as investors sought higher-yielding assets amid efforts by the EU to stem the fallout from Greece’s fiscal crisis. The index gained 0.5 percent today. Greece may get a 55 billion-euro ($75 billion) bailout from the EU, Austria’s Kurier newspaper reported today, without saying where it got the information. Treasury 30-year bonds gained yesterday as one of the biggest yield premiums over two-year notes bolstered demand at a $13 billion auction of 2040 securities. Bids outnumbered the amount on offer by 2.89 times, the most since September. Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. The U.S. should reduce projected budget deficits even though the economy is weak and may relapse into recession, Dudley said yesterday in a speech in London. Waiting for a sustained recovery before enacting a sustainable fiscal plan “is a risky strategy because it fully exposes the economy to the vagaries of market sentiment.” To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

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