Treasuries fell after Japanese Finance Minister Yoshihiko Noda said his government plans to buy European bonds, easing a funding crisis in the region and cutting demand for the relative safety of U.S. debt. Benchmark 10-year notes slid for the first time in four days as the U.S. prepared three auctions this week that will total $66 billion. Global sovereign bonds extended a four-month rout. Noda told reporters in Tokyo that Japan will use its currency reserves to buy more than 20 percent of bonds that will be issued under a special assistance program to help Ireland. “It will support the financial markets,” said Kazuaki Oh’e, a debt salesman in Tokyo at Canadian Imperial Bank of Commerce, the North American nation’s fifth-largest lender. “The flight to quality is unwinding.” Ten-year yields increased two basis points 3.31 percent as of 1:51 p.m. in Tokyo, according to BGCantor Market Data. The 2.625 percent security maturing in November 2020 fell 6/32, or $1.88 per $1,000 face amount, to 94 9/32. The euro strengthened 0.4 percent to 107.57 yen and was little changed versus the dollar. European governments arranged an 85 billion euro ($110 billion) aid package for Ireland in November, to be funded with bond sales this year and next. Greece received a bailout in May. Portuguese bond yields have climbed for the past month on speculation the nation will be next to seek aid from the European Union. The extra yield investors demand to hold 10-year Portuguese debt instead of same maturity German bunds widened to 4.33 percentage points on Jan. 7, the most since November. The spread narrowed to 4.15 percentage points yesterday after traders said the European Central Bank bought the debt. Sovereign Bonds Drop Treasuries are little changed this month, following a 2.7 percent decline in the fourth quarter, Bank of America Merrill Lynch indexes show. A gauge of sovereign bonds dropped 0.2 percent in January, according to the data. It’s lost 2.6 percent in the slide that started in September. Bonds tumbled as the U.S. economy, the world’s biggest, showed signs of improvement. A government report on Jan. 14 will say U.S. retail sales rose for sixth month, according to economists. Ford Motor Co., which manufacturers the Fiesta and Mustang automobiles, said yesterday it plans to hire more than 7,000 workers. The $32 billion of three-year notes scheduled for sale yielded 1.02 percent in pre-auction trading, rising from 0.862 percent at the previous sale of the securities on Dec. 7. Lower Demand Investors bid for 2.91 times the amount of available debt last month. The average for the past 10 auctions is 3.16. Indirect bidders, which include foreign central banks, bought 36.7 percent of the securities, versus the 10-sale average of 42.6 percent. Direct bidders, non-primary dealers buying for their own accounts, purchased 18 percent of the notes, the most in 11 months. Fixed-income bulls say the U.S. economy isn’t strong enough for the Federal Reserve to raise interest rates. Fed Bank of Atlanta President Dennis Lockhart cited uncertainty among businesses and consumers and damaged housing and credit markets as holding back growth. “The headwinds I have emphasized will restrain growth but not stop it,” Lockhart said yesterday in prepared remarks for a speech in Atlanta that was canceled because of snow. Traders are underestimating how long it will take the central bank to raise borrowing costs, and yields are poised to decline, Bank of America Merrill Lynch said in a report. 0.5% in 2012 Federal funds futures contracts for delivery in March 2012 yield 0.51 percent, indicating investors expect the central bank to increase its target for overnight lending to that level by then. The Fed cut the target to a range of zero to 0.25 percent in December 2008. “There are some downside risks to the recovery,” Bank of America analysts led by Priya Misra in New York wrote in the Jan. 7 report. “This should keep the Fed on hold for longer than the market has priced in,” according to the company, which is one of the 18 primary dealers obligated to bid at U.S. government debt sales. The Fed is scheduled to buy $7 billion to $9 billion of Treasuries due from July 2016 to December 2017 today as part of its plan to spur the economy, according to its website. “It will take time to confirm the economic recovery before yields can rise,” said Kei Katayama, who helps oversee the equivalent of $55 billion as leader of the foreign fixed-income group at Daiwa SB Investments Ltd. in Tokyo. The economy will gain traction in 2011, said Rob da Silva, who helps oversee $227.4 billion in Sydney at Principal Global Investors, part of Principal Financial Group Inc. based in Des Moines, Iowa. “For the year, the pressure is more likely to be upward on Treasury yields,” he said. “The recovery seems to be broadening out and gaining a more reasonable foothold.” Principal is favoring corporate bonds over Treasuries, da Silva said. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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