Treasuries were the world's worst-performing bonds this year,before the Federal Reserve meets today and tomorrow to decidewhether to trim its debt-buying program.

U.S. government securities due in a decade and longer havefallen 11 percent from January 1, 2013, to yesterday, the biggestloss among 144 debt indexes tracked by Bloomberg and the EuropeanFederation of Financial Analysts Societies. The Treasury isscheduled to sell $32 billion of two-year debt today, in the firstof four note auctions this week.

“I don't think the Fed will start to taper,” said Kei Katayama,who buys non-yen debt in Tokyo for Daiwa SB Investments Ltd., whichmanages the equivalent of $47.9 billion. “The economic data aremixed. Yields may go slightly lower.” Katayama said the duration ofhis holdings is “slightly” longer than the benchmark he uses togauge performance.

Benchmark 10-year yields declined one basis point, or 0.01percentage point, to 2.87 percent as of 7:57 a.m. in London,according to Bloomberg Bond Trader data. The 2.75 percent securitydue in November 2023 climbed 3/32, or 94 cents per $1,000 faceamount, to 98 31/32 The yield has risen from 1.76 percent at theend of 2012.

The last two-year sale on Nov. 25 drew bids for 3.54 times theamount of debt offered, the highest level since April at themonthly auctions. The notes scheduled for sale today yielded 0.36percent in pre-auction trading, compared with 0.30 percent at lastmonth's sale.

The Treasury's sales this week will also consist of $35 billionin five-year securities tomorrow and $29 billion of seven-yearnotes on Dec. 19. It will auction $16 billion in five-year TreasuryInflation Protected Securities Dec. 19.

China's Shanghai Stock Exchange Composite Index fell for a sixthday, maintaining demand for the relative safety of government debt,according to Kazuaki Oh'e, a debt salesman at CIBC World MarketsJapan Inc. in Tokyo.

U.S. policy makers will decide whether the economy is strongenough to curb the bond purchases it uses to support the expansion.The Citigroup Economic Surprise Index, which shows whether U.S.data beat or missed expectations, climbed to 35.4 yesterday, atwo-month high. The 2013 average is 9.64.

Thirty-four percent of economists contacted by Bloomberg Dec. 6expected the tapering this week, an increase from 17 percent in aNov. 8 survey. The Fed buys $85 billion of Treasury and mortgagedebt a month to fuel growth by putting downward pressure onborrowing costs.

Odds of Tapering

Drew Matus, deputy U.S. chief economist at UBS Securities LLC inStamford, Connecticut, said the odds of a taper now are about onein three.

“We're in a holiday week,” Matus said yesterday on BloombergRadio. “Volumes are going to be lower. A taper is not fully pricedin.” It “could create much more volatility in markets. I'm not surethe Fed wants to do that the week before Christmas.”

Trading volume at ICAP Plc, the largest inter-dealer broker ofU.S. government debt, was $194.4 billion yesterday, versus theaverage of $310.5 billion for the past six months.

A gauge of Treasuries volatility, the Bank of America MerrillLynch MOVE index, was 69.92 yesterday. The six-month average is82.06.

A low inflation rate gives the Fed time to wait, said UBS'sMatus. His company is one of the 21 primary dealers that tradedirectly with the Fed.

U.S. consumer prices rose 1.3 percent in November from 12 monthsearlier, based on a Bloomberg News survey of economists before theLabor Department reports the figure today. The 1 percent increasein October was the least in four years.

Data earlier this month showed the U.S. jobless rate fell to afive-year low of 7 percent, while manufacturing and retail salesexpanded.

Yields may rise temporarily, said Hideo Shimomura, who helpsoversees the equivalent of $67.9 billion as chief fund investor atMitsubishi UFJ Asset Management Co. in Tokyo, part of Japan'slargest publicly traded bank.

“I think the Fed will suggest that they will be tapering nextyear,” he said. “A tapering is not 100 percent priced into themarket.”

Ten-year yields may climb 10 basis points this week, he said.They will probably fall back soon after as investors realize aninterest-rate increase is still far away, he said.

The Fed has kept its benchmark, the target for overnight loansbetween banks, at almost zero for five years. The odds of anincrease by January 2015 are about 16 percent, based on datacompiled by Bloomberg from futures contracts.

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