By Wes Goodman May 27 (Bloomberg) -- Treasuries fell, eroding the biggest monthly gain since March 2009, on concern yields near the lowest level in a year will curb demand when the U.S. sells $31 billion of seven-year notes today. Government securities fell for a second day as Asian stocks and the euro rallied and some investors said Europe will be able to handle its debt crisis, eroding demand for the relative safety of U.S. bonds. “It appears fear has at least taken a breather,” RBC Capital Markets Corp. wrote in a report. “Wait for higher yields” before buying, said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “The level of interest rates is lower than investors want to buy.” The yield on the benchmark 10-year note rose three basis points to 3.23 percent as of 1:44 p.m. in Tokyo, according to data compiled by Bloomberg. The 3.5 percent security due May 2020 fell 9/32, or $2.81 per $1,000 face amount, to 102 10/32. The yield dropped to 3.06 percent on May 25, a level not seen since April 29, 2009. Treasuries returned 1.95 percent in May, the most since March 2009, Bank of America Merrill Lynch indexes showed. Investors rushed to U.S. debt this month as Europe’s credit crunch led investors to seek the safest securities. MSCI’s Asia Pacific Index of shares advanced 1.5 percent, headed for its first two-day gain in more than a month. Europe’s currency strengthened for the first time in four days. “The crisis is over,” said Emeric Challier, a money manager at Avenir Finance Investment Managers in Paris. Rather than being alarmed by the plunging euro, which fell to a four-year low last week, Challier cited the economic boost a weaker currency provides. ‘Support the Recovery’ “The advantage of the euro drop is it will continue to support the recovery,” said Challier, who is betting Spanish, Portuguese and Italian government bonds will rise. German exports and Spanish and Greek vacations become cheaper for Americans and Asians, Bloomberg Markets magazine reported in its July issue. The benefit is especially significant if the euro is depressed a year or more, he said. “We currently do not anticipate a meaningful slowing in the U.S. economy from events taking place in Europe,” Tom Porcelli and Jacob Oubina, RBC economists in New York, wrote in their report yesterday. The U.S. seven-year notes being sold today yielded 2.68 percent in pre-auction trading, declining from 3.21 percent at the previous sale of the securities on April 29. Investors bid for 2.82 times the amount on offer last month, compared with an average of 2.76 for the past 10 auctions. Indirect bidders purchased 59.5 percent of the securities, versus the 10-sale average of 54.5 percent. The U.S. also sold two- and five-year notes this week, with the auctions totaling $113 billion. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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