By Wes Goodman Oct. 24 (Bloomberg) -- Treasuries rose, sending 10-year notes to their biggest weekly gain in a decade, as spreading financial turmoil wiped out more than $10 trillion of stock- market value worldwide this month. ``Bonds are the instrument, par excellence, to profit from the crisis,'' Societe Generale SA said in a report. U.S. government securities returned 1.6 percent so far in October, the most since January, according to Merrill Lynch & Co.'s U.S. Treasury Master index, as tumbling stocks and credit markets spurred demand for the safest assets. ``The stock market is still depressed,'' said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., part of Japan's biggest bank. ``There's uncertainty and anxiety. That's supportive for Treasuries.'' The yield on the 4 percent note due in August 2018 fell 7 basis points to 3.61 percent as of 6:19 a.m. in London, according to BGCantor Market Data. The price advanced 20/32, or $6.25 per $1,000 face amount, to 103 5/32. A basis point is 0.01 percentage point. Two-year rates declined 5 basis points to 1.54 percent. The 10-year yield fell 32 basis points this week, the most since October 1998, on speculation government and central bank efforts to revive lending won't avert a global slowdown. On Oct. 15, 1998, the Federal Reserve unexpectedly cut interest rates to prevent a credit crunch at the time from pushing the U.S. into a recession. Paulson Announcement Treasury Secretary Henry Paulson is preparing to take stakes in regional U.S. banks to halt the freeze of credit to businesses and households, according to a person briefed on the matter. The announcement may come as soon as today, the person, who was briefed by bankers and Treasury officials, said on condition of anonymity. This year's credit-market meltdown prompted Fed officials to make an emergency reduction in rates on Oct. 8, and they will cut again when they meet on Oct. 29, futures contracts indicate. Futures on the Chicago Board of Trade show a 92 percent chance policy makers will lower their target for overnight bank loans, now 1.5 percent, by a half-percentage point, up from 46 percent odds a week ago. The rest of the bets are for a quarter- point reduction. The MSCI Asia Pacific Index of regional shares fell 4.8 percent to its lowest level since May 2004. U.S. stock futures also declined. The yen rose to the highest versus the euro since 2002 as investors pared holdings of higher-yielding assets. ``The financial crisis is now morphing ever more clearly into an economic one,'' Ciaran O'Hagan, a fixed-income strategist in Paris at Societe Generale, said in a report yesterday. ``That leaves spread markets still going in only one direction -- south.'' Debt Increase Shorter-maturity U.S. notes lagged behind longer maturities after the Treasury said yesterday it plans to sell $34 billion in two-year securities on Oct. 28 and $24 billion of five-year debt on Oct. 30. The government is expanding its debt sales to finance a $700 billion financial rescue plan that includes buying equity stakes in U.S. banks and purchasing soured assets from financial firms. Thirty-year bond yields fell 8 basis points to 3.97 percent. They declined as far as 3.94 percent yesterday, near 3.89 percent on Sept. 16, the least since the U.S. reintroduced the security in 1977. The difference between two- and 30-year Treasury yields narrowed to 2.43 percentage points from 2.71 percentage points on Oct. 17. Money Markets 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, widened to 2.54 percentage points from 2.52 percentage points yesterday. The spread has narrowed from 3.66 percentage points on Oct. 10. Paul McCulley, an investor at Pacific Investment Management Co., home to the world's biggest bond fund, said the Libor-OIS spread may be the best way to measure improvement as the Fed expands programs to unfreeze credit markets. ``It's still telling you that the global financial system is a patient in the ICU and the doctor's still got work to do,'' he said yesterday in a Bloomberg Television interview from Newport Beach, California. Borrowing costs for developing nations approached a six-year high after Standard & Poor's yesterday lowered Russia's long-term sovereign credit rating outlook. An index of emerging-market bonds compiled by JPMorgan Chase & Co. yielded 8.36 percentage points more than Treasuries, near the most since November 2002. ``We still have the economy that is slowing, and the Treasury market's responding to that concern,'' said Sean Simko, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. ``There's definitely concern that markets abroad are going to follow suit and be impacted more than expected,'' he said yesterday. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

Source