By Cordell Eddings and Susanne Walker April 23 (Bloomberg) -- Treasury two-year note yields reached their highest in a week as U.S. orders for durable goods excluding transportation rose in March by the most since the recession began in December 2007. The 10-year Treasury yield climbed from near its lowest in a month as Greece called for the activation of a financial lifeline of as much as 45 billion euros ($60 billion) to help it avoid a default. Treasuries are headed for a weekly loss on concern rising debt supply will deter buyers at the next week’s auctions. “The manufacturing sector is getting better,” said Tom Roth, senior Treasury trader in New York at Mitsubishi UFJ Financial Group Inc. “We have supply coming so guys are more inclined to want to sell. With Greece hanging out there, people were concerned about being short. Now people are more confident going home short this weekend.” The two-year yield climbed 3 basis points to 1.06 percent at 8:59 a.m. in New York, according to BGCantor Market Data. The yield touched 1.07 percent, the highest level since April 14. The benchmark 10-year yield gained 4 basis points to 3.81 percent. The 3.625 percent security due in February 2020 fell 10/32, or $3.13 per $1,000 face amount, to 98 3/8. Durable Goods The 2.8 percent increase in bookings for goods meant to last at least three years, excluding cars and aircraft, was four times larger than the median forecast of economists surveyed b Bloomberg News, figures from the Commerce Department showed today in Washington. Total orders unexpectedly dropped 1.3 percent. “The components were very strong, specifically core capital goods,” said William O’Donnell, U.S. government bond strategist at Royal Bank of Scotland Plc in Stamford, Connecticut, one of 18 primary dealers that are required to bid at Treasury auctions. “We’ve rallied further from attractive levels that have brought buyers in of late. If we do not cheapen up further taking down the auctions could be more difficult.” New-home purchases advanced 5.5 percent to a 325,000 annual rate from the prior month, a separate Commerce Department report is forecast to show at 10 a.m. in Washington. The U.S. will sell $44 billion in two-year notes, $42 billion in five-year securities, $32 billion in seven-year debt and $11 billion in five-year Treasury Inflation Protected Securities next week, the Treasury announced yesterday. 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 deficit in 2010, compared with last year’s record $1.4 trillion shortfall. Safest Securities Treasury 10-year yields have fallen from the 4.01 percent they reached on April 5, the highest level since October 2008, as concern Greece might default on its debt had spurred investors to buy what they consider the safest securities even as the government sold record amounts of securities Greek Prime Minister George Papandreou today said “it is a matter of national need to ask officially” for the activation of the European Union-led aid mechanism. The appeal for help from the European Union and International Monetary Fund follows a surge in borrowing costs to what Greek Prime Minister George Papandreou called unsustainable levels that undermine efforts to cut a budget deficit of more than four times the EU limit. Greek bonds and stocks rallied after the announcement. German Spread U.S. debt is becoming more attractive as investors seeking a haven from the Greek crisis buy German bunds, making them more expensive by comparison, said Hiromasa Nakamura, who helps oversee the equivalent of $20.3 billion as a senior investor in Tokyo at Mizuho Asset Management Co. Ten-year Treasuries yield 70 basis points more than similar-maturity German securities. The spread, which was 90 basis points on April 5, the most since 2006, will narrow to 60 basis points by mid-year as U.S. yields fall faster than their German counterparts, Nakamura said. The rising risk of deflation will also help support U.S. bonds, he said. Futures on the CME Group Inc. exchange show a 66 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its December meeting, down from 75 percent odds a month ago. The Fed has kept the rate in a range of zero to 0.25 percent since December 2008. Last month Fed officials repeated a pledge to keep rates low for an “extended period.” Treasuries returned 2 percent this year, compared with 3.2 percent for German bunds, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. Greek government bonds lost 13.2 percent, according to Bloomberg/EFFAS indexes. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net.

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