By Wes Goodman Nov. 9 (Bloomberg) -- Treasuries fell for the first time in three days as Asian stocks rose and the U.S. prepared to sell a record $81 billion of 3-, 10- and 30-year debt this week. Notes slid as Asian shares gained for a second day, raising speculation demand for the relative safety of government debt will wane just as the U.S. begins this week’s sales with $40 billion of three-year notes today. The U.S. House approved health-care legislation that would cost more than $1 trillion over 10 years, indicating the government will have to increase its debt sales to pay for it. “The Treasury has a lot of debt to issue,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking, part of Japan’s biggest bank. “Yields are too low.” Ten-year note yields rose three basis points to 3.52 percent as of 6:26 a.m. in London, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 declined 7/32, or $2.19 per $1,000 face amount, to 100 26/32. MSCI’s Asia Pacific Index of regional shares climbed 0.6 percent. Ten-year yields will rise to 3.8 percent by year-end, Yamamoto said. A Bloomberg survey of economists projects that yields will be at 3.79 percent by the end of June, with the most recent forecasts given the heaviest weightings. Japan’s bonds also fell, sending 10-year yields to the highest level in more than four months. The yield of the benchmark 10-year security rose 2.5 basis points to 1.475 percent, the most since June 17, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. Debt Auctions The U.S. three-year notes scheduled for sale today yielded 1.44 percent in pre-auction trading, versus 1.445 percent at the prior sale on Oct. 6. The note sold last month yielded 1.38 percent today, rising two basis points from last week. Investors bid for 2.76 times the amount of debt on offer in October, versus an average of 2.63 times for the past 10 sales. Indirect bidders, the category of investors that includes foreign central banks, purchased 49.1 percent of the notes last month. The figure was more than 50 percent at the sales in July, August and September. Three-year notes have returned 1.3 percent in 2009, versus a 2.8 percent loss for the entire Treasury market, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. The Treasury is scheduled to sell $25 billion of 10-year debt tomorrow and $16 billion of 30-year bonds on Nov. 12. The difference between two- and 30-year yields was 3.55 percentage points, after reaching 3.56 percentage points on Nov. 6, the most in 15 weeks, as traders prepared for the auction of the Treasury’s longest maturity. Health-Care Funding The U.S. budget deficit widened to a record $1.42 trillion in the 12 months to Sept. 30 as President Barack Obama increased spending to revive the economy. Lawmakers said the health-care bill would cover 36 million uninsured Americans and curb costs. The Senate still needs to act on the legislation. Treasuries gained on Nov. 6, trimming last week’s loss, after the U.S. unemployment rate rose to a 26-year high of 10.2 percent. The Federal Reserve last week repeated its pledge to keep interest rates at record lows for an “extended period.” “You really cannot conceptualize a scenario where the Fed can entertain tightening with over 10 percent on the unemployment rate,” said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, who oversees $22 billion. Payrolls Fall Payrolls fell by 190,000 last month, more than forecast by economists, the Labor Department report showed in Washington. The jobless rate rose from 9.8 percent in September. Japanese investors who lived through a decade of deflation and recessions say U.S. Treasuries are a bargain. Deflation, a general decline in prices, enhances the value of a bond’s fixed payments. Japan bought a net $105 billion of U.S. government debt through August, exceeding China as the biggest foreign buyer and boosting its holdings to $731 billion, or more than 10 percent of the total market, Treasury Department data show. The 17 percent increase is the most since a 25 percent surge in 2004. ‘Double Whammy’ Mizuho Asset Management Co. and Mitsubishi UFJ Asset Management Co. are among the investors buying U.S. bonds because they see similarities between America’s response to the recession and their government’s efforts during the so-called lost decade of the 1990s. “The U.S. economy has faced a double whammy: the recession and credit contraction,” said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japan’s second-largest bank. “The U.S. will face a triple whammy with deflation. That’s good for the Treasury market.” Japanese debt securities returned 90 percent in the 1990s, the Merrill indexes show, while the Nikkei 225 Stock Average fell as much as 67 percent between January 1990 and October 1998. Yields indicate inflation expectations, while rising, are below the 10-year average. The difference between rates on U.S. 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, widened to 2.17 percentage points from about zero at the end of last year. The figure is still below the decade-long average of 2.09 points. Gold, another inflation barometer, rose to a record $1,105.11 an ounce. Yield Spread The Fed and the U.S. government have spent, lent or guaranteed $11.6 trillion to spur the world’s biggest economy from recession and restore trading in credit markets that froze last year. U.S. 30-year fixed mortgage rates have fallen to 5.13 percent from this year’s high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida. A Merrill index of U.S. corporate bonds yields 3.28 percentage points more than Treasuries, narrowing from 8.04 percentage points at the end of 2008. A survey of investors by Ried, Thunberg & Co. shows fund managers are bearish on Treasuries. The company’s index measuring investors’ outlook on government debt through June declined to 39 for the seven days ended Nov. 6 from 40 for the previous week. A reading below 50 shows investors expect prices to fall. The economic analysis company, based in Jersey City, New Jersey, surveyed 25 fund managers controlling $1.34 trillion. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net;

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