Treasuries snapped a gain from yesterday as economists said a government report today will show retail sales increased for a fifth month, adding to signs the world’s largest economy is gaining momentum. Benchmark yields also approached a six-month high after Moody’s Investors Service Inc. said yesterday President Barack Obama’s deal to extend tax cuts increases the chance of a negative outlook for the U.S.’s credit rating. Losses were tempered on speculation Federal Reserve policy makers meeting today will reiterate support for their Treasury-purchase program. “A combination of stronger growth, a worse-than-expected budgetary position and question marks over the U.S.’s credit rating all point to higher U.S. rates,” said Su Lin Ong, a senior economist and fixed-income strategist at RBC Capital Markets Ltd. in Sydney. “Our medium-term bias in 2011 is for higher yields.” The yield on the benchmark 10-year note climbed one basis point to 3.29 percent as of 2:19 p.m. in Tokyo, according to BGCantor Market Data. The 2.625 percent security maturing in November 2020 fell 3/32, or 94 cents per $1,000 face amount, to 94 14/32. The yield climbed to 3.39 percent yesterday, the highest level since June 3. Ten-year yields may increase to 4 percent by the end of next year, Trinh said. The yield will rise to 3.55 percent by the fourth quarter of 2011, according to a weighted Bloomberg survey of economists and analysts. Retail Sales Retail sales rose 0.6 percent in November as Americans started their holiday shopping, according to a Bloomberg survey before the Commerce Department report. Sales increased 1.2 percent in October. A Labor Department report today will show producer-price gains accelerated in November from the prior month, according to a separate Bloomberg survey. President Obama’s agreement with Republicans last week to extend Bush-era tax cuts is likely to boost economic growth in the next two years but will “adversely affect” the budget deficit, Moody’s Senior Credit Officer Steven Hess wrote in a note yesterday. Obama’s deal announced Dec. 6, includes a two-year extension of tax rates in return for extending long-term jobless benefits for 13 months and cutting the payroll tax for $120 billion for a year. “Unless there are offsetting measures, the package will be credit-negative for the U.S. and increase the likelihood of a negative outlook on the U.S. government’s Aaa rating during the next two years,” New York-based Hess wrote. Fed Meeting Fed Chairman Ben S. Bernanke and his policy board, who hold their final meeting of 2010 today, announced on Nov. 3 an additional $600 billion of Treasury purchases through June to bring down the jobless rate and avert deflation. Buying more government bonds is “certainly possible,” Bernanke said in an interview broadcast on CBS Corp.’s “60 Minutes” on Dec. 5, referring to the Fed’s quantitative-easing plan. “It depends on the efficacy of the program” and the outlook for inflation and the economy, he said. “The market probably expects that Bernanke will very much be jawboning and talking up QE2 as a responsible policy,” said Damien McColough, head of fixed-income research in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “I’m not hugely bearish from here” on Treasuries. Primary dealers yesterday submitted $18.268 billion of debt due from June 2016 to November 2017 for possible purchase by the central bank, compared with $33.126 billion in the same maturity range on Dec. 9. The Fed bought $7.79 billion of debt yesterday, part of $105 billion in purchases over the next month. “People were taken aback that the securities offered in the buybacks was only $18 billion,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “It’s just less securities being offered, meaning people’s positions have been pared down. The price action is positive.” To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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