June 30 (Bloomberg) -- Treasuries fell, heading for their steepest first-half loss in three decades, after reports showed the pace of decline in home prices slowed in April and U.S. business activity shrank less than forecast in June.

Ten-year yields rose from the lowest levels in a month as the S&P/Case-Shiller home-price index dropped 18.1 percent in April, the smallest decline in six months, and the Institute for Supply Management-Chicago Inc.’s business barometer increased to 39.9, more than forecast. U.S. debt handed investors a loss of 4.4 percent this year as of yesterday, according to a Merrill Lynch & Co. index.

“I caution the bulls to look for a selling point, I think the market has run its course,” said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world’s largest inter-dealer broker. “This is a chance to sell ahead of some stronger data that we expect will be coming down the road.”

The yield on the 10-year note rose three basis points, or 0.03 percentage point, to 3.51 percent at 3:26 p.m. in New York, according to BGCantor Market Data. The yield yesterday touched 3.45 percent, the lowest level since May 29. The 3.125 percent security maturing in May 2019 fell 6/32, or $1.88 per $1,000 face amount, to 96 25/32.

Housing, Manufacturing

The April decrease in the S&P/Case-Shiller gauge followed an 18.7 percent drop in March. Economists forecast the index would drop 18.6 percent, according to the estimates of 33 economists surveyed by Bloomberg.

The ISM Chicago business barometer stood at 34.9 in May. Economists projected the index would rise to 39, based on the median estimate of 58 economists in a Bloomberg News survey.

Confidence among U.S. consumers slipped unexpectedly in June. The Conference Board’s sentiment index decreased to 49.3 from a revised 54.8 in May, the New York-based research group said today. The figure was still above a record low of 25.3 reached in February.

The Fed bought $7 billion of Treasuries maturing between May 2016 and February 2019. It is scheduled to purchase securities tomorrow maturing from August 2019 to February 2026, according to its Web site.

Borrowing Cost Cap

The purchases are part of the central bank’s plan to buy as much as $300 billion of government securities over six months to cap borrowing costs.

The Fed has bought $187.724 billion in U.S. debt through the operations, which began March 25. The purchases compare to $567 billion in sales of government securities by the Treasury over the same period, according to Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm.

Treasury prices rose yesterday as investors who track their performance to benchmark indexes bought the debt to match the expected change for June. The duration of the Barclays Capital U.S. Treasury Index will extend by 0.06 years, below this year’s average of 0.08 years, the firm estimated June 23. Duration is a measure of bond price sensitivity to interest-rate change.

“This artificial buying and the Fed’s buying has caused some lower yields and we may back up here,” said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world’s largest inter-dealer broker. “Looking back, this may prove to be a good selling point.”

Goldman Sachs Group Inc. estimates the U.S. will borrow $3.25 trillion in the fiscal year that ends Sept. 30, almost four times the $892 billion in the prior 12 months. Goldman Sachs is one of 16 primary dealers that trade with the Fed.

$6.45 Trillion

The year-to-date loss in U.S. debt comes as President Barack Obama sells record amounts to fund stimulus spending and service deficits and follows a gain of 14 percent last year, according to Merrill indexes. A Bloomberg survey of banks and securities companies projects the 10-year yield will increase to 3.72 by year-end.

The Treasury will resume debt sales with an auction of 10- year Treasury Inflation Protected Securities on July 6. It will sell 3-, 10- and 30-year securities on three consecutive days beginning July 7.

Obama has pushed the nation’s marketable debt to an unprecedented $6.45 trillion. The budget deficit is projected to increase to $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office.

Fed officials last week voted to keep the benchmark lending rate unchanged in a range of zero to 0.25 percent, while refraining from increasing their bond-purchase program.

U.S. yields indicate inflation forecasts rose this year as the economy improved. Gross domestic product will start growing again in the third quarter, a Bloomberg survey shows.

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, widened to 1.77 percentage points, from almost zero at the end of 2008. The figure has averaged 2.22 percentage points for the past five years.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net.

Last Updated: June 30, 2009 15:27 EDT