Treasuries fluctuated as the government prepared to sell debt after yesterday’s $24 billion auction drew the most demand on record from foreign central banks. Yields on 30-year bonds were at almost the highest in 10 months as the government prepared to sell $16 billion of the securities today. Indirect bidders bought 71.3 percent of the 10-year notes at yesterday’s sale, compared with 53.6 percent in January and an average of 46.4 percent for the past 10 sales. Stocks in Europe and Asia fell, as did U.S. stock-index futures. “The participation of foreigners was very, very high in yesterday’s 10-year auction,” said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. “I expect to see a firm auction for the 30-year and after the financing is over we will likely trade a little bit more firmly because yields moved too high, too quickly in recent weeks.” Ten-year note yields were little changed at 3.66 percent at 7:46 a.m. in New York, according to data compiled by Bloomberg. The 3.625 percent security maturing in February 2021 was unchanged at to 99 26/32. The yield fell to 3.62 percent yesterday, the least since Feb. 4. Thirty-year yields were little changed at at 4.72 percent. The MSCI Asia Pacific Index of shares slid as much as 1.1 percent to a one-week low. Futures contracts on the Standard & Poor’s 500 Index declined 0.5 percent. U.S. 10-year yields reached a nine-month high of 3.77 percent yesterday, climbing from a nine-month low of 2.33 percent on Oct. 8 as improving economic data sapped demand for the safety of Treasuries, the world’s largest market for government bonds. Bond Insurance Initial jobless claims fell by 5,000 last week to 410,000, according to the median forecast in a Bloomberg News survey of economists before the Labor Department report today. The unemployment rate slid to a 21-month low of 9 percent in January, a report showed last week. The University of Michigan consumer sentiment index rose to 75 this month from 74.2 in January, according to the median forecast of economists in a Bloomberg survey before the report tomorrow. “There’s a concept that the market is pricing in a degree of insurance against the stronger U.S. data that we’ve been seeing,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “There’s some more value interest creeping in to the market at these levels,” he said, referring to buyers attracted by higher yields. The 30-year bonds being sold today yielded 4.70 percent in pre-auction trading, rising from 4.515 percent at the last sale of the securities on Jan. 13. ‘Upward’ Yield Pressure Investors bid for 2.67 times the amount of debt offered last month, versus an average of 2.68 for the past 10 sales. Indirect bidders, the investor group that includes foreign central banks, bought 37.8 percent of the securities, versus the 10-auction average of 38.3 percent. Pacific Investment Management Co., which runs the largest bond fund, said yields are poised to rise as the economic outlook gets better. “There is a change in views on the economy,” Anthony Crescenzi, a portfolio manager at Newport Beach, California- based Pimco, said yesterday during a Bloomberg Radio interview on “Bloomberg Surveillance” with Tom Keene. “The upward pressure on yields will persist for a while.” The government is also scheduled to announce today how much it plans to raise in a sale of 30-year Treasury Inflation Protected Securities, known as TIPS, on Feb. 17. Inflation Expectations The difference between two-year rates and the central bank’s target for overnight lending climbed to 60 basis points on Feb. 8, the most since May, versus the five-year average of 5 basis points. Yields on 30-day federal funds futures contracts for delivery in January 2012 climbed to 0.515 percent the same day from 0.315 percent at the end of January. The figure was 0.465 percent today. The contract settles at the average overnight fed funds rate for the delivery month, making it a way for investors to bet on when policy makers will increase borrowing costs. Policy makers have held the fed funds rate, their target for overnight lending between banks, in a range of zero to 0.25 percent since December 2008. They are also pressing ahead with plans to purchase $600 billion of Treasuries by the end of June to pump money into the economy. ‘Grounds for Optimism’ Fed Chairman Ben S. Bernanke told the House Budget Committee yesterday that while the declines in the jobless rate in December and January “do provide some grounds for optimism,” he cautioned “it will be several years before the unemployment rate has returned to a more normal level.” “Medium-term and longer-term we are still bearish U.S. treasuries, simply because the U.S. economy is facing an enormous stimulus mix and some of the indicators have already turned,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. The 10-year yield will advance to 3.94 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. Rieger forecasts 3.9 percent. To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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