By Anna Rascouet and Wes Goodman Feb. 9 (Bloomberg) -- Treasuries fell for the first time in four days as U.S. stock futures rose and the government prepared to sell record amounts of three-, 10- and 30-year bonds this week. The decline pushed the 10-year note yield up from its lowest level in seven weeks as the Treasury planned to offer $40 billion of securities due in 2013. Futures on the Standard & Poor’s 500 Index climbed 0.8 percent, a sign the U.S. benchmark will rise, as speculation European officials will help Greece tackle its deficit eased concern that government debt burdens will hinder a global economic recovery. “The appetite for fixed income will be tested by the level of supply due this week,” Charles Diebel, an interest-rate strategist at Nomura International Plc in London, wrote in a note to clients today. “We see significant risk of some indigestion that could push yields higher in the near term.” The yield on the 10-year note rose 3 basis points to 3.60 percent as of 7:36 a.m. in London, according to BG Cantor Market Data. The 3.375 percent security due in November 2019 dropped 1/4, or $2.50 per $1,000 face amount, to 98 6/32. The difference between two- and 10-year yields was 2.80 percentage points, after reaching a record of 2.90 percentage points on Jan. 11. Two-year rates tend to track the Fed’s target for overnight lending because of their shorter maturity. Yields on longer-term bonds are more influenced by the size of the government’s debt and the inflation outlook. Yields to Rise The U.S. is also scheduled to sell $25 billion of 10-year notes tomorrow and $16 billion of 30-year bonds on Feb. 11, bringing the week’s total to $81 billion. President Barack Obama has increased the nation’s marketable debt to a record $7.27 trillion as he tries to sustain growth. A Bloomberg survey of banks and securities companies projects ten-year yields will be 3.76 percent by June 30, with the most recent forecasts given the heaviest weightings. U.S. debt is so high it’s “not consistent” with improving credit fundamentals, said John Brynjolfsson, chief investment officer at hedge fund Armored Wolf LLC. “By any metric, it would be hard to say that the U.S. Treasury deserves an Aaa rating,” Brynjolfsson, who is based in Aliso Viejo, California, said yesterday on Bloomberg Radio. Moody’s Investors Service said on Feb. 2 that the U.S.’s Aaa debt rating “could come under downward pressure,” unless the government cuts the budget deficit. Marc Faber, publisher of the “Gloom, Boom & Doom Report,” said Treasuries would carry high-yield, high-risk ratings if the U.S. were a corporation. Faber, speaking on Bloomberg Television by telephone from Cambodia, said yesterday he takes issue with Treasury Secretary Timothy F. Geithner’s view that the U.S. will “never” lose its top-level debt rating. Geithner made his comment on ABC News on Feb. 7. Annual Gain “I don’t think that anyone looks at the U.S. as the gold standard,” Faber said. Treasuries are still up 1.8 percent this year, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit. The MSCI World index of shares handed investors a 6.5 percent loss, after accounting for reinvested dividends. U.S. securities gained yesterday as concern some European nations may default on their debt increased demand for the relative safety of U.S. government debt. Ten-year yields approached the lowest in seven weeks as sovereign risk crises in Greece, Portugal and Spain dulled investor appetite for higher- yielding assets. Today’s Auction The three-year notes scheduled for sale today yielded 1.32 percent in pre-auction trading, compared with 1.49 percent at the previous sale of the securities on Jan. 12. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.98 last month, compared with an average of 2.85 for the past 10 sales. Indirect bidders, the group that includes foreign central banks, bought 38 percent of the debt, versus the 10-sale average of 50.7 percent. Ten-year yields will climb to 4.50 percent by year-end as the economy recovers from recession, according to a report on Feb. 5 from Deutsche Bank AG, one of the 18 primary dealers required to bid at the government debt sales. “We are not concerned about an inflation flare-up, but the risks of deflation are clearly diminishing,” wrote Carl J. Riccadonna, an economist for the company. Deflation is a general decline in prices. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, which gauges trader expectations for consumer prices, was 2.24 percentage points, versus the five-year average of 2.17 percentage points. Analysts at JPMorgan Chase & Co. led by Srini Ramaswamy in New York said in a report on Feb. 5 that investors should sell two-year notes. The securities will fall as the Federal Reserve prepares to raise interest rates from a record low in nine to 12 months, the analysts wrote. To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.netWes Goodman in Singapore at wgoodman@bloomberg.net.

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