Jan. 30 (Bloomberg) -- A rout in Treasuries will deepen as the U.S. economy improves from the worst recession since the 1980s, according to a trader at Industrial & Commercial Bank of China Ltd., the nation’s biggest lender.

“Yields are going to rise in the second half of the year,” said Xin Li, who trades the securities for the bank in Hong Kong. “The U.S. economy may recover a little bit. Conditions will be better and better.”

Ten-year yields will increase to 3 percent in the second half of 2009, Li said, from 2.82 percent as of 1:13 p.m. in Tokyo. An investor who bought today would lose 0.3 percent if the rate climbs to that level by the start of July, according to data compiled by Bloomberg.

President Barack Obama is depending on Chinese investors, the largest holders of U.S. debt outside the nation, as he borrows record amounts to end the recession. Treasuries lost 2.96 percent this month, the most in almost five years, according to Merrill Lynch & Co. indexes, as the government increased its debt sales.

The decline eroded last year’s 14 percent gain, the most since 1995, which was driven by investors seeking the relative safety of government debt as the economic contraction deepened.

The U.S. will probably borrow $2.5 trillion this fiscal year ending Sept. 30, almost triple the $892 billion in notes and bonds sold in the prior 12 months, according to Goldman Sachs Group Inc., one of the 17 primary dealers that underwrite the U.S. debt.

China owns $681.9 billion of the $5.8 trillion in U.S. marketable debt, Treasury Department data show.

Japanese investors own $577.1 billion of the securities, making them the second-largest holders outside the U.S.

The U.S. economy will shrink in the first half of 2009 and grow in the second, a Bloomberg survey of banks and securities companies shows. The 10-year yield will rise to 3.02 percent by Dec. 31, according to a separate Bloomberg survey, with the most recent forecasts given the heaviest weightings.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

Last Updated: January 29, 2009 23:24 EST