By Lukanyo Mnyanda and 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 recovery is gaining momentum. Investors are seeking higher interest rates on long-term loans to the government as President Barack Obama borrows record amounts to sustain the recovery. Yields show investors added to bets on inflation for an eighth day, the longest run in almost a year. Ten-year bonds fell before a report economists say will show claims for jobless benefits declined last week. “We have so much supply in the long end of the curve that this could make it a more difficult auction,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “We could see yields going higher.” Investors should favor German bunds over Treasuries as U.S. inflation expectations increase, From said. The 30-year bond yielded 4.7 percent as of 6:14 a.m. in New York, according to data compiled by Bloomberg. The 4.625 percent security due February 2040 declined 5/32, or $1.56 per $1,000 face amount, to 98 24/32. The yield was 3.79 percentage points more than that of the two-year note, after increasing to 3.85 percentage points on Feb. 17, the most since at least 1980, according to data compiled by Bloomberg. The 30-year security will probably yield 4.75 percent by the end of June, compared with 1.1 percent for the two-year note, according to From. Similar-maturity German bunds will yield 4 percent and 1.2 percent, respectively, From said. Record Sales 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. Today’s auction of 30-year debt follows a sale of $21 billion of 10-year debt yesterday. The Treasury auctioned a record-tying $40 billion of three-year notes on March 9. Initial claims for U.S. jobless benefits probably fell to 460,000 last week, according to the median of 45 predictions in a Bloomberg survey of economists, the Commerce Department may say today. Separate data may show the trade deficit widened in January as imports grew faster than exports. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of expectations for gains in consumer prices known as the breakeven rate, widened to 2.26 percentage points today, from 2.18 points a week ago. The average over the past five years is 2.16 percentage points. Germany’s 10-year breakeven rate is 1.83 percentage points. Treasuries Versus Bunds Ten-year Treasuries yielded 58 basis points more than similar-maturity bunds today, up from 38 basis points on Jan. 21. Treasuries have made investors 1.4 percent this year, trailing a 2.1 percent return on German securities, according to indexes compiled by Bank of America Corp.’s Merrill Lunch unit. The 30-year bonds scheduled for sale today yielded 4.70 percent in pre-auction trading. At the most recent auction of the securities on Feb. 11, investors bid for 2.36 times the amount offered, 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 previous 10 sales. The 10-year yield, a benchmark for everything from mortgage rates to student loans, has climbed 82 basis points in the past 12 months to 3.73 percent as evidence accumulates that the global economy is recovering from the recession. Treasuries fell yesterday, led by shorter-maturity debt, as gains in global stocks lessened the appeal of U.S. government securities as a refuge. Investors sought higher-yielding assets after former European Commission President Romano Prodi said the financial crisis hurting Greece, which is seeking to cut its budget deficit, is over. The U.S. economy is growing fast enough for the Fed to 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 rate for overnight bank loans near zero for an “extended period.” They will drop that 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, according to Deutsche Bank. To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

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