By Keith Jenkins and Yasuhiko Seki April 22 (Bloomberg) -- The Treasury 10-year yield was near the lowest level in four weeks as concern that Greece will need to tap emergency loans to avoid default boosted demand for the relative safety of U.S. government debt. The difference between two- and 10-year yields was close to a one-month low as Greece’s 10-year bonds slid for a eighth consecutive day, pushing yields to more than twice that of benchmark German bunds. U.S. notes rose yesterday on speculation the Treasury will start to cut the sizes of its auctions after next week’s sales. “Concerns about developments in the euro-zone government bond market have had a positive spillover effect into Treasuries,” said David Schnautz, a fixed-income strategist at Commerzbank AG in Frankfurt. “The main point of interest for the Treasury market today will be next week’s supply figures.” The yield on the 10-year note was little changed at 3.74 percent as of 6:42 a.m. in New York, according to BGCantor Market Data. It dropped earlier to 3.73 percent, the lowest since March 24. The 3.625 percent security due February 2020 was at 99 3/32. The yield difference between two- and 10-year securities shrank to 2.72 percentage points yesterday, also the lowest since March 24, before trading at 2.74 percentage points today. The spread widened to a record 2.94 percentage points Feb. 18. Concern the fiscal crisis in Greece would slow the global economic recovery has helped send Treasury 10-year yields down from the 4.01 percent they reached on April 5, the highest level since October 2008. Worse Deficit The European Union said today that Greece’s deficit in 2009 was worse than previously forecast. EU officials lifted their estimate to 13.6 percent of gross domestic product from 12.7 percent and said it could top 14 percent. The extra yield investors demand to hold Greek 10-year bonds instead of German bunds climbed to a record 550 basis points. The Treasury will next week sell an unprecedented $128 billion of two-, five- and seven-year notes and inflation- indexed securities maturing in five years, according to the average estimate of nine primary dealers in a Bloomberg survey. The supply of Treasuries may fall by $52 billion for the rest of fiscal 2010 and drop by $589 billion in fiscal 2011, James Caron, head of U.S. interest-rate strategy at primary dealer Morgan Stanley in New York, wrote in a note to clients. President Barack Obama has boosted marketable U.S. debt to a record $7.76 trillion, Treasury figures show. Obama’s proposed budget calls for a $1.6 trillion budget deficit in 2010, compared with last year’s record $1.4 trillion gap. ‘Last Hurrah’ “We may be approaching the last hurrah in terms of record weekly supply,” Schnautz said. “We have to make room for next week’s supply avalanche, but in the medium term, less supply may provide an underlying supportive factor.” Gains for bonds have been tempered by data showing the economic recovery in gaining traction. Bookings for goods meant to last several years rose for a fourth month in March, according to a Bloomberg News survey before the Commerce Department report tomorrow. Sales of U.S. previously-owned homes probably rose in March for the first time in four months, economists said before a National Association of Realtors’ report due later today. Purchases increased 5.3 percent to a 5.29 million rate, according to a survey. Treasury yields have also been supported as companies reported earnings that beat analyst estimates. Nestle SA, the world’s largest food company, said first- quarter sales advanced, partly fueled by higher demand in Asia. As of yesterday, about 83 percent of Standard & Poor’s 500 companies that have reported first-quarter results beat the average analyst earnings estimate, according to data compiled by Bloomberg, which would mark a record proportion in data going back to 1993. “Earnings have been reasonably strong,” said Orlando Green, an interest-rate strategist at Credit Agricole Corporate and Investment Bank in London. To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.

Source