Treasury yields were three basis points from the most in a week on speculation investors will demand higher rates at $72 billion of note and bond sales that begin tomorrow, following a stronger-than-expected jobs report. The U.S. is scheduled to auction $32 billion of three-year notes tomorrow, $24 billion of 10-year debt on Feb. 8 and $16 billion of 30-year bonds on Feb. 9. Signs of economic growth have pushed U.S. government securities to a 0.3 percent loss this year, versus a 2.1 percent gain for corporate bonds, based on Bank of America Merrill Lynch indexes. “Investors will realize that the U.S. economy is stronger than expected,� said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “They will push up yields.� Benchmark U.S. 10-year rates held at 1.92 percent at 2:19 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due November 2021 changed hands at 100 21/32. The rate climbed to 1.95 percent on Feb. 3, the most since Jan. 27. The record low was 1.67 percent set Sept. 23. Thirty- year bonds yielded 3.12 percent. Japanese 10-year rates increased one basis point, or 0.01 percentage point, to 0.96 percent. They were as low as 0.935 percent on Jan. 16, a level not seen since November 2010. Investors in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker, maintained their bearish stance on Treasuries. Ried’s index on the market outlook through June was unchanged at 45 for the seven days ended Feb. 3 from the previous week. A figure below 50 shows investors expect Treasuries to decline. Jobs Data Treasuries fell Feb. 3 after the Labor Department said employers added 243,000 jobs in January. The median forecast of economists in a Bloomberg News survey was for 140,000. The jobless rate slid to 8.3 percent, the lowest in three years. The difference between yields on 10-year notes and longer maturities may increase as investors prepare for the sale of 30- year bonds, the Treasury Department’s longest maturity, Barclays Capital Inc., said in its market-outlook report for today. The company is one of the 21 primary dealers that trade with the Fed. The so-called spread widened to 1.22 percentage points on Feb. 3, the most since September, according to data compiled by Bloomberg. Longer-Maturity Debt The Federal Reserve is replacing $400 billion of shorter- maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June. The central bank is scheduled to buy as much as $2 billion of securities due from February 2036 to November 2041 today as part of the plan, according to the New York Fed’s website. Treasuries snapped last week’s decline as European officials and Greek policy makers failed to produce an aid package for the nation. “Treasuries will be bullish because the Greek debt solution is not going smoothly,� said Will Tseng, a Treasuries trader at Taipei-based Shin Kong Life Insurance Co., which has the equivalent of $52.1 billion in assets and is Taiwan’s second-largest life insurer. Ten-year yields may fall to 1.7 percent during first half of 2012, he said. Greek Debt Greek political-party leaders must provide a response to demands by the European Union, European Central Bank and International Monetary Fund on economic measures, including wage cuts, by 11 a.m. local time today, a spokesman for the Pasok political party told reporters in Athens. Procter & Gamble Co.’s failure to raise the price of Cascade dish soap shows why investors are buying Treasuries at the lowest yields in history, giving the Federal Reserve scope to boost the economy. The world’s largest consumer-products company rolled back prices after an 8 percent increase lost the firm 7 percentage points of market share. Kimberly-Clark Corp. (KMB) started offering coupons on Huggies after resistance to the diapers’ cost. Darden Restaurants Inc. raised prices at less than the inflation rate as patrons order more of Olive Garden’s discounted stuffed rigatoni than it anticipated. Inflation Target Low inflation has continued to boost demand for Treasuries, keeping rates down as President Barack Obama finances a $1.1 trillion budget deficit to boost an economy still growing at rates below the 20-year average. The Fed set an annual inflation target of 2 percent two weeks ago, and policy makers suggested they may conduct a third round of bond purchases. “Any way you look at it, the Treasury market is still expecting rather benign inflation, and we will be in a low-rate environment for some time,� David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut, said Feb. 1 in a telephone interview. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.17 percentage points, versus the average of 2.14 percentage points for the past decade. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net.

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