By Wes Goodman Oct. 15 (Bloomberg) -- Treasuries gained, sending 10-year notes higher for the first time in six days, after Asian stocks fell and Federal Reserve Bank San Francisco President Janet Yellen said the U.S. is in a recession. Notes rose as BNP Paribas, one of the 17 primary dealers that trade with the Federal Reserve, said the U.S.'s bank-rescue plan hasn't stopped home prices from falling, putting the global economy in danger. Retail sales in the U.S. probably declined the most in 15 months in September and producer prices slid, economists forecast before government reports today. ``Yields will drop,'' said Tsutomu Komiya, an investment manager in Tokyo at Daiwa Asset Management Co., a unit of Japan's second-largest brokerage, overseeing the equivalent of $96 billion. ``Property prices are the major weak point in the economy. The Fed will cut rates further.'' The yield on the 10-year note fell 5 basis points to 4.03 percent as of 11:43 a.m. in Tokyo, according to data compiled by Bloomberg. The price of the 4 percent security due August 2018 rose 11/32, or $3.44 per $1,000 face amount, to 99 23/32. A basis point is 0.01 percentage point. Two-year yields declined 4 basis points to 1.78 percent. The rally may not pick up until after the Treasury's quarterly sales in November, said Komiya, who hasn't added to his holdings since he last bought in September. Weaker Economy The MSCI Asia Pacific Index of regional shares fell 2 percent, dropping for the first time this week and helping increase demand for the relative safety of government debt. ``The outlook for the U.S. economy has weakened noticeably,'' Yellen said late yesterday in the text of a speech in Palo Alto, California. ``Virtually every major sector of the economy has been hit by the financial shock.'' St. Louis Fed President James Bullard said yesterday the economy appears to be slowing. Fed Chairman Ben S. Bernanke and Vice Chairman Donald Kohn, who both vote on the Fed's policy committee, are scheduled to speak today. Fed Bank of Boston President Eric Rosengren is also slated to make remarks. Rosengren, Yellen and Bullard don't vote this year. BNP economists led by Paul Mortimer-Lee in London said falling U.S. home prices are still threatening the global financial system, even after the U.S. joined the U.K., Germany and France in offering to buy stakes in banks. Housing Slump ``Without wishing to be a party pooper, the recession -- with all that usually means for earnings and corporate defaults -- has only just begun,'' BNP said in a report today. U.S. retail sales fell 0.7 percent in September, after dropping 0.3 percent in August, according to the median estimate in a Bloomberg survey of economists before the Commerce Department reports the figure. The Labor Department may say prices paid to manufacturers fell 0.4 percent in September after a 0.9 percent decline the prior month, a separate survey showed. Futures on the Chicago Board of Trade show a 92 percent chance the Fed will reduce its target for overnight bank loans, now 1.5 percent, by a quarter percentage point at its next meeting on Oct. 29. Treasuries have fallen over the past week as traders fled government debt on concern the U.S. will issue more securities to pay for a bank rescue plan. Yields on 10-year notes have risen more than 60 basis points since Oct. 8, when they touched 3.40 percent. Bailout Plan Treasury Secretary Henry Paulson urged banks receiving capital to use the funds to spur economic growth. They should ``not take this new capital to hoard it, but to deploy it,'' he said yesterday in Washington. The cost of borrowing in dollars fell after the U.S. joined the U.K., Germany and France in offering to buy stakes in banks to restore confidence in financial markets. The London interbank offered rate, or Libor, that banks charge each other for one-week loans dropped 50 basis points to 4.08 percent, the British Bankers' Association said yesterday. It was at a 2008 high of 4.76 percent on Oct. 9. The overnight dollar rate slid 29 basis points to 2.18 percent yesterday, down from 3.94 percent a week earlier. A gauge that measures the scarcity of cash eased. The difference between the rate banks charge for three-month dollar loans relative to the overnight indexed swap rate, the so-called Libor-OIS spread, narrowed to 3.43 percentage points from 3.66 points at the end of last week. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, shrank to 4.30 percentage points from 4.64 percentage points on Oct. 10, the most since Bloomberg began tracking the data in 1984. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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