Nov. 4 (Bloomberg) -- Treasuries were little changed, after the biggest rally in a week, on speculation a government report on factory orders today will show the U.S. economy is shrinking fast enough for the Federal Reserve to cut interest rates again.

Yields on two-year notes, among the most sensitive to rate changes, held at the lowest in a week after Fed Bank of Dallas President Richard Fisher said the economy probably won't expand in 2009. Futures on the Chicago Board of Trade show a 54 percent chance policy makers will reduce the target for overnight bank loans from 1 percent to 0.5 percent at the Fed's Dec. 16 meeting. The rest of the bets are for a quarter-point cut.

``Yields will fall because the recession is going to last for a year,'' said Shuhei Mochizuki, an assistant manager in the foreign bond section at Sumitomo Life Insurance Co. in Tokyo, Japan's fourth-largest life insurer by assets with the equivalent of $30.3 billion in non-Japanese debt. ``Treasuries have liquidity and they're very safe.''

Two-year notes yielded 1.44 percent as of 10:41 a.m. in Tokyo, according to BGCantor Market Data. The 1.5 percent security maturing in October 2010 traded at a price of 100 4/32. Ten-year notes yielded 3.91 percent.

Two-year rates will fall to 1.25 percent and 10-year yields will be 3.6 percent by the end of the year, Mochizuki said.

Orders placed with U.S. factories declined 0.8 percent in September, following a 4.4 percent slide in August, according to the median forecast of economists surveyed by Bloomberg News before the Commerce Department report at 10 a.m. in Washington.

Growth Choked Off

``I don't see any economic growth through 2009,'' Fisher said in a Bloomberg Television interview yesterday. ``The credit crisis reached up and grabbed the throat of the global economy and choked off economic growth.''

Americans vote today to decide if Republican John McCain or Democrat Barack Obama will be the next president, choosing who will inherit the most severe financial crisis since the Great Depression.

Two-year notes returned 1.1 percent in October, according to indexes compiled by Merrill Lynch & Co., as investors sought the safest securities and the Standard & Poor's 500 Index fell almost 17 percent, the most since 1987.

Ten-year notes handed investors a loss of 0.8 percent because of concern the U.S. will increase sales of long-term debt to pay for a $700 billion bank-rescue package.

Borrowing Needs

The government said yesterday fourth-quarter borrowing needs probably will grow to $550 billion, up from an earlier estimate of $142 billion.

The U.S. is scheduled on Nov. 5 to announce the amount of Treasuries it plans to auction. It may sell a net $388 billion of bills, notes and bonds this quarter, up from $178.4 billion in the previous three months and $33.4 billion in the same period of 2007, according to a survey by the Securities Industry and Financial Markets Association released Oct. 31.

``People are still clinging to their security blanket and the front end of the Treasury curve,'' said Robert Tipp, chief investment strategist for fixed income in Newark, New Jersey, at Prudential Investment Management, which oversees more than $200 billion of bonds. ``They are going to be wondering: how ungodly is the data? Is it just briefly so, or does it get that way and stay?''

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

Last Updated: November 3, 2008 21:02 EST