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Treasuries Decline Before Data That May Show Economy Improving

U.S. Treasuries declined on speculation investors may demand higher yields at sales of the securities this week amid signs global growth is holding up.

The drop sent 10-year yields near a one-week high. European stocks and U.S. equity futures advanced, curbing demand for the safest fixed-income assets, after a report showing German consumer confidence will rise in August. U.S. industry data today will show home prices rose by the most in almost four years, according to economist estimates. A $38 billion two-year sale set for today was poised to draw a record-low rate.

“The market is making room for new supply,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. “A bounce in stocks also took a shine off most safe- haven assets including the Treasuries.”

The yield on 10-year notes rose three basis points to 3.02 percent as of 7 a.m. in New York, according to BGCantor Market Data. The 3.5 percent security due May 2020 fell 8/32, or $2.50 per $1,000 face amount, to 104. The rate climbed to 3.03 percent yesterday, the highest level since July 15.

Data from around the world is pointing to economic recovery. The German consumer sentiment index, based on a survey of 2,000 people, will climb to 3.9 from a revised 3.6 in July, the Nuremberg-based GfK said. Economists expected the index to remain unchanged at this month’s initial reading of 3.5 points, the median of 25 estimates in a Bloomberg survey showed.

Property Values

The S&P/Case-Shiller index of property values increased 3.9 percent in May from a year earlier, according to the median of 26 projections in a Bloomberg News survey of economists, buoyed by a temporary tax credit. That would be the biggest increase since September 2006. U.S. gross domestic product expanded 2.5 percent in the second quarter, versus 2.7 percent in the previous three months, economists said before the government reports the figure on July 30.

Separate reports today may show consumer confidence dropped in July, survey of economists indicated.

Yields are poised to rise and economic growth will be “decent but not great,” Bank of America Merrill Lynch said in a report. The 10-year yield will advance to 3.25 percent by year-end, the bank said in its report. The company is one of the 18 primary dealers required to bid at government debt sales.

The U.S. two-year note yield climbed two basis points to 0.61 percent, versus the record low 0.5516 on July 23. The MSCI World Index of shares climbed 0.4 percent.

Two-Year Yields

The two-year securities being offered today yielded 0.64 percent in pre-auction trading, versus the prior record low of 0.738 percent at the previous auction on June 22. Investors bid for 3.45 times the amount on offer last month versus an average of 3.18 for the past 10 sales.

Indirect bidders, the category of investors including foreign central banks, purchased 41.4 percent of the notes, versus the 10-sale average of 40.9 percent. Direct bidders, non- primary dealers that place their bids directly with the Treasury, bought 21.3 percent.

The Treasury is scheduled to auction $37 billion of five- year debt tomorrow and $29 billion in seven-year securities the following day.

Yields indicate investors are becoming more willing to lend.

The three-month London interbank offered rate for dollars, or Libor, fell for a 10th day, to 0.481 percent.

The difference between yields on U.S. company bonds and government debt narrowed to 2.92 percentage points from 3.25 percentage points in June, according to Bank of America Merrill Lynch indexes.

Bond Sales

Corporate bond sales this month totaled $77.7 billion, according to Bloomberg data. The total for June was $69.8 billion. Alcoa Inc., the largest U.S. aluminum producer, sold $1 billion of notes yesterday, according to data compiled by Bloomberg. Commonwealth Edison Co., the Chicago-based electric utility owned by Exelon Corp., issued $500 million of 10-year notes.

The difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, was at 1.82 percentage points today from this year’s high of 2.49 percentage points in January. The five-year average is 2.13 percentage points.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

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