By Susanne Walker and Paul Dobson May 26 (Bloomberg) -- Treasuries fell, pushing yields up from yesterday’s one-year low, as signs the economic recovery is still on course boosted equities and curbed demand for the safety of U.S. fixed-income assets. Ten-year yields gained as a U.S. report showed new-home sales rose to a two-month high. The Organization for Economic Cooperation and Development in a report raised its growth forecasts for this year and next. The Treasury is scheduled to sell $40 billion of five-year securities today, the second of three auctions this week totaling $113 billion. “Stocks are firmer globally, and we see some easing of the prevailing flight-to-quality demand as the situation in Europe continues to unfold,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The size, magnitude and speed of the recent moves leave the market open to choppier environment.” The yield on the benchmark 10-year note increased 6 basis points, or 0.06 percentage point, to 3.24 percent at 10:05 a.m. in New York, according to BGCantor Market Data. The yield dropped yesterday to 3.06 percent, the lowest level since April 29, 2009, as the European debt crisis boosted demand for the safest securities. The Standard & Poor’s 500 Index rose 1.4 percent. The MSCI World Index advanced 1.8 percent in its first gain this week. New-Home Sales New-home sales in April climbed 15 percent to an annual pace of 504,000, the most since May 2008, after surging a revised 30 percent the prior month, figures from the Commerce Department showed today in Washington. Orders for durable goods rose in April for the fourth time in five months, pointing to strength in U.S. manufacturing at the start of the second quarter. The 2.9 percent increase in bookings for goods meant to last at least three years was the biggest in three months, another Commerce report showed today. Orders excluding transportation fell after revisions showed even bigger gains in prior months. The Conference Board said yesterday its confidence index rose to 63.3 this month, the highest level since March 2008, from a revised 57.7 in April. The economy of the OECD’s 30 members will grow 2.7 percent this year, more than the 1.9 percent predicted in November, the Paris-based group said. The U.S. economy will grow 3.2 percent in 2010 and next year instead of the 2.5 percent predicted in November, the OECD said. Pre-Auction Trading The five-year notes being sold today yielded 2.086 percent in pre-auction trading, compared with 2.54 percent at the prior sale on April 28. Investors bid for 2.75 times the amount on offer last month, above the average of 2.57 for the past 10 auctions. Indirect bidders, the category of investors including foreign central banks, bought 48.9 percent of the notes, up from 39.7 percent at the March sale. Direct bidders, non-primary dealers that place their bids with the Treasury, bought 14.3 percent, the most since October 2008. The 18 companies registered with the Federal Reserve as primary dealers are required to bid at the auctions. An auction of $42 billion of two-year notes yesterday drew the lowest yield on record at 0.769 percent. The Treasury will conclude this week’s note sales with $31 billion of seven-year debt tomorrow. The U.S.’s top bond rating will come under pressure unless the government cuts record budget deficits, Moody’s Investors Service Inc. said. ‘Substantially Worsened’ U.S. finances have been “substantially worsened by the credit crisis, recession, and government spending to address these shocks,” Moody’s analysts led by Steven A. Hess wrote in a report yesterday. “The ratios of general government debt to GDP and to revenue are deteriorating sharply, and after the crisis they are likely to be higher than the ratios of other Aaa-rated countries.” The U.S. retains its top rating for now because of a “high degree of economic and institutional strength,” the New York- based ratings company said in its statement. The outlook is stable, Moody’s said. U.S. government securities still headed for their biggest monthly gain since the height of the financial crisis in 2008. The debt has returned 2.28 percent this month, Bank of America Merrill Lynch indexes show. The last time Treasuries rallied so much was in December 2008, when they returned 3.54 percent. The securities gained 5.38 percent in November 2008 after the collapse of Lehman Brothers Holdings Inc. two months prior boosted demand for the safest securities. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net

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