Treasuries rose the most in a week as stocks fell on renewed concern the global economic recession is deepening, prompting investors to seek safer assets. U.S. notes climbed as Moody’s Investors Service said credit ratings of banks with units in eastern Europe may be lowered. Treasuries also advanced as Japan reported demand for services fell in December more than forecast and trading in credit- default swaps in Europe showed the cost of protecting high-risk, high-yield corporate bonds from default rose to near a record. “We’re quite sharply lower today in yields,” said Charles Diebel, head of European rate strategy in London at Nomura International Plc. “The path of least resistance is still toward higher prices on a continuing risk-aversion theme.” The yield on the 10-year note fell 13 basis points, or 0.13 percentage point, to 2.76 percent at 7:06 a.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 rose 1 1/8, or $11.25 per $1,000 face amount, to 99 7/8. Ten-year rates will drop to 2.62 percent by March 31, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. The yield fell to a record low of 2.04 percent on Dec. 18 and averaged 4.55 percent this decade. Stocks Decline Merrill Lynch & Co.’s World Sovereign Bond Index returned 0.5 percent in February as investors shunned higher-yielding assets. The MSCI World Index of shares dropped for a sixth day today, losing 1.3 percent, as every major stock market in Europe declined and U.S. equity index futures slid. Eastern European banks, which are mainly subsidiaries of financial institutions such as Raiffeisen Zentralbank Oesterreich AG and Swedbank AB, are likely to come under “downward pressure” that may also weaken their parent companies, Moody’s wrote in a report released today in London. Shrinking economies in Ireland and the Ukraine raised speculation the nations will have trouble paying their debts, said Andrew Brenner, co-head of structured products in New York at MF Global Ltd., the world’s largest broker of exchange-traded futures and options contracts. The difference in yield, or spread, between German and Irish 10-year notes widened to 254 basis points, more than 10 times what it was a year ago, as investors demanded higher premiums to hold the debt of smaller European economies on concern governments will have difficulty servicing debt. Corporate Bond Risk Contracts on Europe’s Markit iTraxx Crossover Index of 50 companies with mostly junk credit ratings increased 24 basis points to 1,117, approaching the all-time high of 1,128 reached Dec. 16, according to JPMorgan Chase & Co. prices in London. The index is a benchmark for the cost of protecting bonds against default and an increase signals a deterioration in the perception of credit quality. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 4.5 basis points to 165.5. European Central Bank President Jean-Claude Trichet said Feb. 5 that following the Fed and the Bank of Japan in cutting rates to near zero has “drawbacks” that are “inappropriate.” Even so, investors drove yields on two-year German bunds to the lowest level relative to longer-maturity debt since 1997, a sign they are betting he will have to do just that. “The bond market is telling the ECB they need to wake up to reality,” said Komal Sri-Kumar, chief global strategist at Los Angeles-based TCW Asset Management, which has about $118 billion in assets. “They didn’t do their job on time or adequately, and need to cut rates again as soon and as much as they can. They also need to start thinking of unconventional measures.” New York Factories A Federal Reserve report today will show manufacturing in New York State shrank this month, according to the median forecast of 44 economists surveyed by Bloomberg News. Delphi Corp., the bankrupt auto-parts maker, is cutting 775 jobs, or 11 percent of the workforce, at the company’s steering components operation in Saginaw, Michigan, a spokesman said yesterday. President Barack Obama plans to sign the $787 billion fiscal stimulus bill into law today in Denver, according to a spokeswoman, Jen Psaki. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, narrowed to 1.23 percentage points from last week’s high of 1.43 percentage points. The figure has averaged 1.70 percentage points for the past year. Credit Squeeze Investors from outside the U.S. bought $20 billion more of the nation’s long-term bonds, notes and stocks than they sold in December, following two months of net sales, according to a Bloomberg survey of economists before the Treasury Department report today. Yields indicate government and Fed efforts have yet to restore credit markets to where they were before trading froze last year. The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, narrowed to 0.96 percentage point, from 4.64 percentage points in October. The gap averaged 0.27 percentage point from 2002 through 2006, before the credit crisis began in 2007. The London interbank offered rate, or Libor, for three- month dollar loans was at 1.25 percent, compared with 1.08 percent on Jan. 14.

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