By Susanne Walker and Paul Dobson Dec. 9 (Bloomberg) -- Treasuries fell, with the difference between 2- and 30-year securities reaching the widest amount 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 auction of $21 billion of the securities today and $13 billion of 30-year debt tomorrow. Treasuries rose yesterday as the record-tying $40 billion sale of three-year notes drew the lowest yield since January after a reduction in Greece’s credit rating spurred demand for the relative safety of U.S. debt. “Short of supply, there’s little to justify the market being down,” said David Ader, the head of government bond strategy at Stamford, Connecticut-based CRT Capital Group LLC. “The relief from the Fed and supply considerations have pushed us to the upper limits of the 2s and 30s spread. These reopenings of 10-years tend to find decent bidding.” Benchmark 10-year note yields rose two basis points, or 0.02 percentage point, to 3.41 percent at 8:33 a.m. in New York, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 slipped 6/32, or $1.88 per $1,000 face amount, to 99 3/4. The spread between yields on 2-year and 30-year Treasuries touched 366 basis points. The last time the spread was so large was 1992, when the Federal Reserve cut interest rates to bolster growth after a recession. ‘At Their Posts’ “The market has been waiting with trepidation for today and tomorrow’s auctions,” Chris Ahrens, head of interest-rate strategy in Stamford, Connecticut at UBS Securities LLC, wrote in a note to clients. The firm is one of the 18 primary dealers that trade with the Federal Reserve. “The conventional wisdom has it that underwriting all this long duration is going to be difficult in a quiet December market. The only problem with the reasoning is that it hasn’t particularly held true. Yesterday’s price action suggested that portfolio managers are at their posts again this week.” The Treasury sold $40 billion of three-year notes yesterday at a yield of 1.223 percent, compared with the average forecast of 1.229 percent in a Bloomberg News survey of six of the Fed’s primary dealers. Investors bought 2.98 times the available securities, compared with an average of 2.75 for the past 10 sales. The last auction of 10-year notes, a record $25 billion offering on Nov. 10, drew a yield of 3.47 percent, below the average forecast of 3.475 percent in a Bloomberg News survey. ‘Near Term Threat’ The yield on the two-year note rose three basis points to 0.75 percent. It dropped 11 basis points in the first two days of the week after Fed Chairman Ben S. Bernanke said on Dec. 7 that the U.S. economy faces “significant headwinds” and that the target rate for overnight lending between banks would stay low for an “extended period.” The central bank’s efforts to boost economic growth are leading to speculation inflation will accelerate 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 at 2.13 percentage points, up from almost zero in December 2008. The next worldwide crisis will probably strike in 2012, driven by inflation as the low cost of borrowing spurs increases in asset prices, said Andy Xie, a former Morgan Stanley chief Asian economist, in a report yesterday. Greece’s Debt That contrasts with the view of Pacific Investment Management Co., which runs the world’s biggest bond fund. Deflation is a “bigger near-term threat,” Pimco said in a report on its Web site. Yields on two-year Greek government notes added 20 basis points today to 2.94 percent following a jump of 66 basis points yesterday. Fitch Ratings cut Greece’s credit rating yesterday one step to BBB+, the third-lowest investment grade, on concern the nation may struggle to meet its debt commitments as public finances deteriorate. “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. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net;

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