By Wes Goodman and Paul Dobson Dec. 9 (Bloomberg) -- Treasuries were little changed, with the difference between two- and 30-year securities within one basis point of the widest in 17 years, as the U.S. prepared to sell $34 billion of debt in auctions today and tomorrow. The 10-year note snapped two days of gains before the U.S. sells $21 billion of the securities today and $13 billion of 30- year debt tomorrow. Higher yields for longer-dated Treasuries show investors expect inflation to quicken. “There is an inflation concern,” said Shuhei Mochizuki, who helps oversee $226 billion in assets as assistant manager at the foreign-bond section at Sumitomo Life Insurance Co. in Tokyo. “The economy is gradually recovering.” Benchmark 10-year note yields rose 1 basis point to yield 3.40 percent as of 8:27 a.m. in London, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 slipped 2/32, or 63 cents per $1,000 face amount, to 99 26/32. The spread between yields for two-year and 30-year Treasuries was at 365 basis points, after reaching 366 basis points yesterday. The last time the spread between two-and 30- year yields was so large was 1992, when the Federal Reserve cut interest rates to sustain growth after a recession. Ten-year yields will rise to 3.83 percent by the middle of next year, according the median of 72 analysts’ and strategists’ forecasts compiled by Bloomberg, with the most recent predictions given the heaviest weightings. Mochizuki predicts 3.75 percent. Inflation Outlook The yield on the two-year note climbed 2 basis points to 0.74 percent. It dropped 11 basis points in the first two days of the week after Federal Reserve Chairman Ben S. Bernanke said two days ago the target for overnight bank lending would stay at a record low for an “extended period,” and the U.S. economy faces “significant headwind.” Two-year notes are attracting investors seeking the relative safety of U.S. government debt as stocks and sovereign debt perceived to be more risky decline. The MSCI Asia Pacific Index of shares dropped 0.7 percent, its first loss in three days. At the same time, the central bank’s efforts are leading to speculation prices for goods and services will rise in the years ahead, eroding the value of bonds’ fixed payments. The spread between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of trader expectations for consumer prices, was little changed at 2.13 percentage points. It was at almost zero at the end of 2008. Next Crisis Former Morgan Stanley chief Asian economist Andy Xie said in a report yesterday that the next worldwide crisis will probably strike in 2012, driven by inflation as the low cost of borrowing spurs increases in asset prices. The 10-year notes being sold today yielded 3.33 percent in pre-auction trading. The previous auction, a record $25 billion offering on Nov. 10, drew a yield of 3.47 percent, below the forecast of 3.475 percent in a Bloomberg News survey. Investors bid for 2.81 times the amount of securities offered, versus an average for the past 10 auctions of 2.63. Indirect bidders, the category of investors that includes foreign central banks, purchased 47.3 percent of the notes, versus the 10-sale average of 39.1 percent. Debt Sale Treasuries advanced yesterday, with a record-tying $40 billion three-year note auction drawing the lowest yield since January, after the reduction in Greece’s credit rating spurred demand for debt. The securities were sold at a yield of 1.223 percent, compared with a forecast of 1.229 percent in a Bloomberg News survey of six of the Fed’s primary dealers. Investors sought 2.98 time the available securities, compared with an average of 2.75 for the past 10 sales. “After the recent news flow and flight to quality, we expect a solid set of results and are especially mindful of the degree of direct bidder participation in the U.S.,” Charles Diebel, head of European interest-rate strategy at Nomura International Plc in London, said in an investor note today. Yields on two-year Greek government notes jumped 66 basis points to 2.72 percent yesterday, after Fitch Ratings downgraded the country’s debt. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. Paul Dobson in London at pdobson2@bloomberg.net

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