By Wes Goodman Oct. 22 (Bloomberg) -- Treasuries rose, pushing 10-year notes up for a fourth day, as stocks slid and Federal Reserve Bank of Minneapolis President Gary Stern said central bank actions haven't calmed financial markets. Government securities headed for a fifth monthly gain as traders added to bets that Fed policy makers will cut interest rates for a second time when they meet on Oct. 29. The U.S. recession is getting worse, said Mickey Levy, chief economist at Bank of America Corp. in New York. ``We are constructive on twos through 10s'' among the various Treasury maturities, said Naruki Nakamura, a portfolio manager in Tokyo for Fischer Francis Trees & Watts Inc., part of BNP Paribas SA, which oversees more than $30 billion of debt. ``Growth is expected to slow further.'' The yield on the 10-year note fell 6 basis points to 3.68 percent as of 6:38 a.m. in London, according to BGCantor Market Data. The price of the 4 percent security due August 2018 rose 14/32, or $4.38 per $1,000 face amount, to 102 20/32. A basis point is 0.01 percentage point. Fischer Francis may add to its holdings if 10-year yields rise past 4 percent, Nakamura said. Two-year rates declined 8 basis points to 1.54 percent. The difference between the two yields widened to 2.14 percentage points from 1.38 percentage points three months ago as two-year rates, which are more sensitive to changes in borrowing costs, fell faster than their longer-term counterparts. The MSCI Asia Pacific Index of regional shares fell 5 percent, snapping a three-day rally. `Not Yet' Achieved ``Restoration of stability has not yet been achieved,'' Stern, the longest-serving Fed policy maker, said yesterday in the text of a speech in Escanaba, Michigan. Losses from a meltdown in the credit markets spread beyond the U.S. Argentina's planned seizure of $29 billion of private pension funds stoked concern the nation is headed for its second default in a decade. South Korea is ready to take additional measures to restore confidence in its financial system if needed, the nation's top financial regulator said, after this week announcing it would guarantee $100 billion of banks' foreign-currency debt. ``We are already in recession'' in the U.S., Bank of America's Levy said in an interview yesterday. ``It's deepening. We're in the middle of a crisis in confidence.'' Futures on the Chicago Board of Trade show a 64 percent chance the Fed will reduce its target for overnight bank loans, now 1.5 percent, by half a percentage point next week. The odds rose from zero percent a month ago. The rest of the bets are for a quarter-point reduction. Euro Falls The euro fell to the lowest since November 2006 against the dollar on speculation the European Central Bank will lower rates faster than the Fed. U.S. policy makers will reduce their benchmark by half a percentage point by March 31, a Bloomberg News survey of economists shows. The ECB will cut its rate three-quarters of a point to 3 percent, according to the survey. The euro fell to $1.2824 per dollar from $1.3063 late yesterday in New York. The Fed invoked emergency authority yesterday and agreed to provide up to $540 billion in loans to help relieve pressure on money-market mutual funds beset by redemptions. The program ``should improve the liquidity position of money market investors,'' the central bank said in a statement. Trading is starting to improve in credit markets as the Fed adds dollars to the banking system, which will curtail demand for Treasuries, said Peter Jolly, head of markets research in Sydney at NabCapital, the investment-banking unit of National Australia Bank Ltd., the nation's largest lender. Hard to Rally ``It'll be hard for them to rally,'' Jolly said. ``The fix is in the financial markets. Risk aversion should recede.'' Ten-year yields will rise to 4 percent by June, while two- year yields already reflect forecasts for Fed rate cuts, he said. Two-year notes yield about 4 basis points more than the central bank's benchmark. The spread has averaged about 24 basis points over the past decade. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed for a seventh day yesterday to 2.77 percentage points. It was little changed today. The difference between the rate banks charge each other for three-month dollar loans relative to the overnight indexed swap rate, the so-called Libor-OIS spread, narrowed to 2.77 percentage points from 3.66 percentage points on Oct. 10. Treasuries returned 0.8 percent this month, according to Merrill Lynch & Co.'s U.S. Treasury Master index. The Standard & Poor's 500 Index fell 35 percent so far this year and credit market losses since the start of 2007 climbed to $659 billion, spurring demand for the safest assets. ``The market is running on fear,'' Arthur Bass, a managing director of derivatives in New York at the brokerage Newedge USA LLC, said yesterday. ``It is fear and expectations of rate cuts and more federal interventions -- whatever they can do to help the markets.'' To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

Source