Treasury yields were near a one-week low on speculation Portugal will follow Greece and Ireland in seeking a bailout from the European Union, increasing investor appetite for the relative safety of U.S. debt. Demand for the haven of Treasuries will reverse a sell-off that pushed yields to a seven-month high in December, Nomura Securities International Inc. said in a report. The Federal Reserve is scheduled to buy $7 billion to $9 billion of Treasuries due from February 2018 to November 2020 today as part of its plan to spur the economy, according to its website. “I’m bullish” on Treasuries, said Zeal Yin, who helps oversee the equivalent of $51.1 billion as a bond investor at Shin Kong Life Insurance Co., Taiwan’s second-largest life insurer. “The European situation is not resolved. Flight-to- quality flows will continue. I bought last week.” Ten-year notes yielded 3.32 percent as of 6:49 a.m. in London, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 was 94 5/32. Treasuries trading was closed in Japan today for a holiday, according to the Securities Industry and Financial Markets Association in New York. Trading will take place as usual in the U.K. and the U.S., the group’s website says. Ten-year rates dropped to 3.28 percent on Jan. 5, the least this year. They have declined from 3.56 percent on Dec. 16, which was the most since May. Safer Assets “Demand will return especially in the form of flight-to- quality type bids given the ongoing concerns over the euro zone,” George Goncalves and Aaron Kohli, analysts at Nomura in New York, wrote in a report today. The company is one of the 18 primary dealers that are required to bid at the government debt sales. The euro fell to $1.2867 today, the weakest level since Sept. 14, before trading little changed. Germany and France will pressure Portugal to seek help from the European bailout fund to prevent contagion to other countries such as Spain and Belgium, Der Spiegel reported on Jan. 8, without saying where it got the information. The German Finance Ministry said yesterday it isn’t pressuring Portugal. The extra yield investors demand to hold 10-year Portuguese debt instead of same maturity German bunds widened to 4.33 percentage points on Jan. 7, the most since November. Treasuries are still down 0.4 percent over the past month, according to Bank of America Merrill Lynch indexes, on signs of improvement in the economy. A government report Jan. 14 will show U.S. retail sales rose for sixth month, economists said. Yellen Speech Fed Vice Chairman Janet Yellen said the central bank’s asset purchases will add 3 million jobs to private payrolls and have prevented the country from slipping into deflation. “Inflation is currently a percentage point higher than would have been the case,” she said Jan. 8 in a speech in Denver. “In the absence of such purchases, the economy would now be close to deflation.” Wall Street banks are cutting holdings of Treasuries at the fastest pace since 2004 as the world’s biggest bond firms bet that the economy will strengthen and demand for higher-yielding assets will increase. The 18 primary dealers reported that holdings of U.S. government debt tumbled to a net $2.34 billion on Dec. 29 from $81.3 billion on Nov. 24, the most since June 2009, according to the most recent central bank data. While the stake is the lowest since February, corporate bond and mortgage securities have risen from the lows of the year. ‘Stronger Footing’ Dealers had stocked up on U.S. debt anticipating demand from customers who wanted to sell the securities to the central bank as part of Fed Chairman Ben S. Bernanke’s plan to buy $600 billion of Treasuries. Government bonds lost their allure as stocks rose, corporate financing conditions eased, expectations for inflation increased and the dollar strengthened. “Slowly but surely the economy’s getting on stronger footing,” said John Fath, who helps manage $2.5 billion as a principal at investment firm BTG Pactual in New York and was the former head government bond trader at UBS Securities LLC, a primary dealer. Economic figures indicate growth will be “strong,” Srini Ramaswamy and Kimberly Harano, analysts at JPMorgan Chase & Co. in New York, wrote in a report Jan. 7. “Overweight risky assets,” JPMorgan, one of the primary dealers, told investors. Fund managers in a weekly survey by Ried Thunberg ICAP Inc. became more bearish on the outlook for Treasuries through March. Ried’s sentiment index declined to 47 for the seven days ended Jan 7 from 48 the week before. A figure of less than 50 indicates investors expect prices to fall. The 10-year yield will fall to 3.05 percent by March 31 and then advance to 3.55 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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