Nov. 10 (Bloomberg) -- Treasuries declined, led by 30-year bonds, before the U.S. sells $55 billion in notes and bonds this week, its biggest round of sales since 2004.

U.S. government debt fell for a second day as China announced a 4 trillion yuan ($586 billion) economic stimulus plan, helping lift Asian stocks and boosting demand for higher-yielding assets. The U.S. will start its so-called quarterly refunding with a $25 billion auction of three-year notes today.

``The increase in supply, and we're expecting more to come, will be a negative for the Treasury market,'' said Minako Iida, a strategist for non-yen debt at Barclays Capital Japan Ltd. in Tokyo. ``The short end of the market is too expensive.'' Barclays' U.S. arm is one of the 17 primary dealers required to bid at government auctions.

Two-year note yields climbed 5 basis points to 1.38 percent as of 6:04 a.m. in London, according to BGCantor Market Data. The price of the 1.5 percent security maturing in October 2010 fell 3/32, or 94 cents per $1,000 face amount, to 100 7/32.

Yields on the notes will gain to 1.5 percent by year-end, Iida said. Thirty-year bond yields rose 3 basis points to 4.30 percent and 10-year rates increased 4 basis points to 3.83 percent. A basis point is 0.01 percentage point.

China's plans to spend on housing, roads, railways and airports follow's Treasury Secretary Henry Paulson's plan to spend $700 billion to rescue U.S. banks.

MSCI's Asia Pacific Index of regional shares advanced 3.2 percent after China announced its package, reducing demand for the relative safety of government debt.

Three-Year Sale

The cost of protecting Asia-Pacific bonds from default declined, according to traders of credit-default swaps.

The Markit iTraxx Japan index fell 19 basis points to 2.21 percentage points, according to Morgan Stanley. Credit-default swaps, contracts to protect against or speculate on default, decline as perceptions of credit quality improve.

The U.S. is reviving its three-year note after an 18-month suspension as it increases debt auctions to pay for the Treasury Department's economic plan. The government also plans to sell $20 billion in 10-year notes Nov. 12, and $10 billion in 30-year bonds Nov. 13.

The prior three-year sale on May 7, 2007, was for $14 billion. It drew a yield of 4.574 percent and investors bid for 2.39 times the amount of debt on offer. The security yielded 1.21 percent today.

Trading may be less than usual today. The Securities Industry and Financial Markets Association recommended trading close at 2 p.m. in New York and stay shut worldwide tomorrow because of the U.S. Veterans Day holiday.

Recession Fuels Demand

Government securities returned 5.6 percent this year and 9.06 percent for all of 2007, according to Merrill Lynch & Co.'s U.S. Treasury Master index. Demand for the safest assets is being fueled by the risk of a global recession after a U.S. housing slump led to a seizure in credit markets.

American Express Co., the largest U.S. credit-card company by purchases, said on Oct. 30 it would eliminate 10 percent of its workforce, or about 7,000 people.

It will take at least 18 months to turn around the U.S., even if President-elect Barack Obama ``does everything perfectly,'' Nobel Prize-winning economist Joseph Stiglitz wrote in the Washington Post yesterday.

Yields indicate banks are less willing to lend than they were at the start of 2007, before the credit crisis.

Weak Growth

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 2.01 percentage points from 0.18 percentage point in February 2007.

The spread increased to 4.64 percent on Oct. 10, the most since Bloomberg began compiling the data in 1984.

``From a tactical perspective, the market needs to be cheapened up to take down the supply,'' said Robert Tipp, chief investment strategist for fixed income in Newark, New Jersey, at Prudential Investment Management. ``Once you get through the refunding, the market represents pretty good value,'' given ``the prospect of weak growth,'' he said last week.

The difference between yields on two- and 10-year notes, known as the yield curve, may widen to a record 3 percentage points from 2.45 percentage points now, according to strategists at Morgan Stanley and Credit Suisse Group AG.

Steepening Curve

Shorter-term yields are falling as investors bet the Federal Reserve will reduce its target for overnight loans between banks to spur the shrinking U.S. economy. Ten-year yields are likely to rise as the government increases its long-term debt sales, the strategists said.

The difference between two- and 10-year yields reached a record of 2.74 percentage points in 2003 after the Fed finished a series of 13 rate reductions. The spread is steepest as the central bank stops lowering borrowing costs and investors anticipate an economic recovery, according to Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. LLC in New York.

A weekly survey of fund managers by Ried, Thunberg & Co., an economic advisory company in Jersey City, New Jersey, shows investors are bearish on U.S. government securities.

The measure of money manager sentiment through the end of December held at 43 for the seven days ended Nov. 7 from the week before. Readings below 50 indicate investors expect bonds to decline. The company surveyed 29 fund managers overseeing $1.43 trillion.

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

Last Updated: November 10, 2008 01:07 EST