U.S., Australian and Japan bonds gained as investors sought the safety of government debt on speculation U.S. spending cuts set to begin March 1 will hurt the world’s largest economy.

Benchmark U.S. 10-year yields fell to a one-month low before Federal Reserve Chairman Ben S. Bernanke addresses U.S. lawmakers. The U.S. plans to sell $35 billion of five-year notes today and $29 billion of seven-year debt tomorrow. The Bollinger band technical indicator showed the Treasuries rally is poised to stop.

The U.S. 10-year yield fell one basis point, or 0.01 percentage point, to 1.86 percent as of 6:39 a.m. in London, according to Bloomberg Bond Trader prices. The price of the 2 percent note maturing in February 2023 rose 2/32, or 63 cents per $1,000 face amount, to 101 10/32. The last time the yield was so low was Jan. 25.

“With the sequester cuts coming at the end of the week, I’m not sure why you’d sell Treasuries,” said Ali Jalai, who trades U.S. debt in Singapore at Scotiabank, a unit of Bank of Nova Scotia, one of the 21 primary dealers that underwrite the U.S. securities. “Canada is completely falling apart. European numbers are not that good. U.K. numbers are not that good. U.S. numbers are mixed.”

Australia 10-year yields declined to a one-month low of 3.38 percent, based on closing levels.

Japan’s five-year rate slid to a record low of 0.115 percent. The benchmark 10-year yield touched 0.675 percent, the least since June 2003.

Global Data

Canada retail sales dropped 2.1 percent in December from November, the government reported earlier this month. The euro-area economy will shrink in consecutive years for the first time, the European Commission said. Moody’s Investors Service cut Britain’s top debt ranking.

In the U.S., government data today will probably show new-home sales rose, while a report tomorrow may show orders for durable goods fell, based on Bloomberg News surveys of economists.

Treasuries rallied yesterday as an inconclusive election in Italy, the euro area’s third-largest economy, increased demand for the relative safety of Treasuries.

Ten-year yields are less than the so-called lower Bollinger level of 1.88 percent, suggesting gains may end. The bands gauge volatility by plotting standard deviations above and below a moving average. Analysts use them to determine a probable range for a rate or security.

Sequestration Looms

President Barack Obama urged U.S. governors to pressure Congress for a deal to avoid the March 1 spending cuts, telling them yesterday the impact would be felt in every state.

Congress mandated $1.2 trillion in across-the-board spending cuts, to begin this year and be spread over nine years, as part of a 2011 deal to increase the U.S. debt limit. The reductions, also known as sequestration, are to be split almost evenly between defense and non-defense spending.

At the last five-year auction on Jan. 29, investors bid for 2.88 times the amount of debt available. The average for the past 10 sales is 2.86 times.

A $35 billion two-year sale yesterday draw purchase orders for 3.33 times the amount offered, the lowest level in 19 months.

Investors demanded 51 basis points of extra yield to buy five-year securities instead of two-year debt, versus the average of 46 basis points over the past six months. The difference was as much as 63 basis points earlier in February.

Two-year yields are anchored by the Federal Reserve’s pledge to keep benchmark borrowing costs low, though rates indicate an increase is likely by the end of 2015.

‘Cannot Hike’

“Five-year notes are quite vulnerable,” said Hideo Shimomura, who helps oversee the equivalent of $64.8 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co. “The Fed cannot hike rates for two to three years, but they may raise rates a lot after they start.”

Thirty-day federal funds futures contracts for delivery in September 2015 yielded 0.53 percent, indicating investors expect the central bank to raise its benchmark interest rate a quarter point by then.

Policy makers cut their target for the federal funds rate, which banks charge each other for overnight loans, to a range of zero to 0.25 percent in 2008.

Maintain Policy

In January, they affirmed their pledge to keep the target near zero “at least as long” as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.

The central bank is also buying $85 billion of Treasury and mortgage bonds a month to put downward pressure on interest rates.

The Fed’s Bernanke is scheduled to testify before U.S. lawmakers today and tomorrow.

Fed Bank of Atlanta President Dennis Lockhart said he wants to continue central bank asset purchases at least into the second half of the year to help bring about an improved job market, speaking yesterday in Knoxville, Tennessee. He doesn’t vote on monetary policy this year.

(Corrects size of today’s Treasury note gain in third paragraph.)
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