By Wes Goodman March 11 (Bloomberg) -- Treasury 30-year yields were near the highest on record compared with two-year rates as the U.S. prepared to sell $13 billion of long bonds amid signs the global economy is recovering. Investors are seeking higher interest rates on long-term loans to the government as President Barack Obama borrows record amounts to sustain the U.S. economic revival. Yields show investors added to bets on inflation for a seventh session yesterday, the longest run in a year. “We’re facing an unprecedented level of government borrowing,” said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $60.8 billion in assets. “Investors are demanding a premium for that. Yields are going to rise a bit more.” The 30-year bond yielded 4.68 percent as of 1:28 p.m. in Tokyo, according to data compiled by Bloomberg. The 4.625 percent security due February 2040 traded at a price of 99 3/32. The rate was 3.78 percentage points more than two-year yields, after increasing to 3.85 percentage points on Feb. 17, the steepest slope to the so-called yield curve since Bloomberg data tracking the figures started in 1980. The government sold $21 billion of 10-year debt yesterday after auctioning a record-tying $40 billion of three-notes on March 9. Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. Trade Deficit The U.S. trade deficit probably widened in January as imports grew faster than exports, according to the median forecast in a Bloomberg News survey of economists, pointing to a rebound in global economic growth. The Commerce Department will release the data today. A separate report may show initial claims for jobless benefits fell for a second week. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for gains in consumer prices, widened to 2.25 percentage points from 2.18 percentage points a week ago. The five-year average is 2.16 points. The 30-year bonds scheduled for sale today yielded 4.70 percent in pre-auction trading. Investors at the last auction of the securities on Feb. 11 bid for 2.36 times the amount on offer, versus an average of 2.48 for the past 10 sales. Indirect bidders, the group that includes foreign central banks, bought 29 percent, versus an average of 42 percent at the past 10 sales. Lower Mortgage Rates Bidders who buy directly from the Treasury without going through one of the primary dealers that underwrite U.S. debt purchased almost a quarter of the bonds, the most since the government revived sales of the securities in 2006. The 10-year yield has climbed 82 basis points in the past 12 months to 3.71 percent today as evidence accumulates that the global economy is recovering from the worst recession since World War II. To help keep home-loan costs from rising, the Federal Reserve is buying $1.25 trillion of so-called agency mortgage- backed debt, securities that guide U.S. mortgage rates. It said on Jan. 27 that it will end those purchases this month. U.S. 30-year fixed mortgage rates have fallen to 5 percent from last year’s high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida. The figure is 1.28 percentage points more than 10-year Treasury yields, the narrowest spread since July 2007. Concerns ‘Dissipating’ Mortgage rates may rise 10 basis points when the central bank stops buying the securities, Goldman Sachs Group Inc. wrote in a March 3 report. A Fed announcement that it planned to sell its mortgage-backed securities would boost mortgage rates about 80 basis points, according to Goldman, one of the 18 primary dealers that trade directly with the central bank. Treasuries fell yesterday, led by shorter-maturity debt, as gains in global stocks lessened the refuge appeal of U.S. government securities. Investors sought riskier assets after former European Commission President Romano Prodi said Greece’s financial crisis is over. Ten-year notes pared losses yesterday after investors bid for 3.45 times the amount of 10-year notes on offer, a record. Economy Growing The U.S. economy is growing fast enough that the Fed will drop its promise to keep borrowing costs at a record low next month, said Joseph LaVorgna and Carl Riccadonna, economists at Deutsche Bank Securities Inc. in New York, another primary dealer. Policy makers have pledged to keep their target for overnight bank lending low for an “extended period.” They’ll cut the language from the statement following their April 28 meeting, the economists wrote in a report yesterday. The Fed has one meeting before then, on March 16. Ten-year yields will rise to 4.5 percent by year-end, Deutsche Bank said in the report. A Bloomberg survey of banks and securities companies projects the figure will be 4.10 percent, with the most recent forecasts given the heaviest weightings. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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