Treasuries rose for a second day on speculation China will increase interest rates to slow economic growth and Europe’s sovereign-debt crisis will spread, spurring demand for the safest securities. Longer-maturity bonds led the gain after demand increased at a $13 billion auction of 30-year debt yesterday. Benchmark 10-year yields declined from near the highest level in six months as economists said a Chinese report tomorrow will show inflation quickened and after Fitch Ratings downgraded Ireland’s credit rating yesterday, adding to concern Europe’s fiscal woes will worsen. “China has clearly shifted to a monetary tightening stance, so the pace of its growth may drop, which could slow the global recovery,” said Hiromasa Nakamura, who helps oversee the equivalent of $36 billion as a fund manager in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest publicly traded bank. “This is supportive of Treasuries.” The yield on the 30-year bond fell three basis points to 4.37 percent as of 2:56 p.m. in Tokyo, according to data compiled by Bloomberg. The 4.25 percent security due November 2040 rose 13/32, or $4.06 per $1,000 face amount, to 97 30/32. The yield climbed to 4.50 percent on Dec. 8, the highest level since May 13. The 10-year yield dropped two basis points to 3.19 percent, after increasing to 3.33 percent Dec. 8, the most since June 4. ‘Prudent’ Policy China’s statistics bureau brought forward the release of economic data, including inflation, to Dec. 11 from Dec. 13, fueling speculation the nation is preparing to boost borrowing costs. The reports will show consumer prices rose 4.7 percent in November from a year earlier, quickening from a 4.4 percent increase the previous month, according to a Bloomberg survey. Chinese officials said they will shift to a “prudent” monetary policy next year as the government seeks to rein in liquidity and fight price gains, the state-run Xinhua News Agency reported Dec. 3. Benchmark notes still headed for a second weekly loss before a U.S. report today that economists said will show consumer confidence rose in December, a sign the economic recovery is gaining momentum. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 72.5 in December from 71.6 in November, according to a Bloomberg News survey before today’s report. Applications for jobless benefits declined to 421,000 last week, from 438,000 the prior week, the Labor Department said yesterday. ‘Better Data’ Treasuries slumped earlier this week, with 10-year yields jumping 35 basis points in two days, after President Barack Obama on Dec. 6 agreed to extend tax cuts for two years and reduce the payroll tax by 2 percentage points. “Better data means that people are starting to revise up their growth forecasts for the U.S. economy for next year,” said Khoon Goh, head of market economics and strategy in Wellington at ANZ National Bank Ltd., New Zealand’s largest lender. “I definitely expect U.S. yields to push higher still from here.” Thirty-year bonds advanced for a second day after the government’s auction of the securities drew the highest demand in four months. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, climbed to 2.74, the most since the Aug. 12 sale. The bonds were sold at a yield of 4.410 percent, compared with the average forecast of 4.477 percent in a Bloomberg survey of primary dealers. ‘Gone Well’ “The auction was perceived to have gone well,” said Norifumi Yoshida, vice president of the trading section in Singapore at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest banking group. The extra yield investors demand to hold 10-year notes over 2-year debt narrowed to 2.58 percentage points today, after widening to 2.70 percentage points Dec. 8, the most since May 18. The difference between yields on 10-year notes and those on Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities known as the break-even rate, was 2.15 percentage points today after increasing to 2.29 percentage points on Dec. 8, the widest since May 13. To contact the reporters on this story: Ron Harui in Tokyo at rharui@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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