Aug. 24 (Bloomberg) -- Treasuries rallied, driving two-year note yields to a another record low and sending those on 10-year securities below 2.5 percent for the first time since March 2009 after an industry report showing sales of existing homes tumbled in July bolstered concern the economy is faltering. “There is a grab for yield at any price,” said Christian Cooper, senior rates trader in New York at Jefferies Group Inc., one of the 18 primary dealers that trade directly with the Federal Reserve. The government prepared for a $37 billion auction of two- year notes. The dollar dropped to a 15-year low versus the yen and U.S. stocks retreated. The yield on the 10-year note fell 12 basis points, or 0.12 percentage point, to 2.48 percent at 10:09 a.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 rose 1 3/32, or $10.94 per $1,000 face amount, to 101 10/32. The 10-year note’s yield touched 2.4668 percent, the 17- month low. The two-year note yield touched a record low of 0.4542 percent. Surge in Yen The yen appreciated as much as 1.7 percent to 83.72 per dollar, the strongest level since June 1995, as investors sought refuge. The Standard & Poor’s 500 Index fell 1.5 percent. “Risk aversion is back in force,” William O’Donnell, managing director at Royal Bank of Scotland Plc in Stamford, Connecticut, and the analyst John Briggs wrote in a research note to clients today. “Our bias continues to be for a flatter curve.” The extra yield investors demand to hold 30-year bonds over two-year notes narrowed to about 3.15 percentage points, the lowest level since October 2009. The spread between 10- and 2- year Treasury yields fell to 2.04 percentage points, reflecting the flattest yield curve since April 2009. The U.S. economy grew at 1.4 percent annual pace in the second quarter, which would be the slowest rate since the recovery began in the middle of last year, a Commerce Department update on Aug. 27 is forecast by analysts to show. A 2.4 percent pace was calculated last month. Bernanke’s View Fed Chairman Ben S. Bernanke will discuss the outlook for the economy on Aug. 27 at a conference in Jackson Hole, Wyoming. Following its Aug. 10 policy meeting, the central bank set a floor on its securities holdings and said growth would be “more modest in the near term than had been anticipated.” Before today’s two-year note sale, the securities yielded 0.484 percent in pre-auction trading, compared with the record low of 0.665 percent at the previous offering on July 27. Investors bid for 3.33 times the amount on offer last month, compared with an average of 3.19 for the past 10 sales. Yesterday’s sale of 30-year Treasury Inflation Protected Securities, or TIPS, drew a yield of 1.768 percent, the lowest ever for sales of the debt dating to 1998. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of bonds offered, was a record high 2.78. Indirect bidders, an investor class that includes foreign central banks, bought 38.9 percent of the bonds, compared with 42.4 percent in February. Direct bidders purchased 28 percent of the bonds, compared with 6.4 percent. Note Auctions The Treasury is also scheduled to auction $36 billion of five-year debt tomorrow and $29 billion in seven-year securities the following day. Altogether, the $102 billion of notes being sold this week is the smallest total for this combination of securities since May 2009. The Fed will purchase about $18 billion of U.S. debt by the middle of September using the money from principal payments on its holdings of agency debt and agency mortgage-backed securities. The central bank plans to buy notes due from 2013 to 2014 today and debt maturing from 2021 to 2040 on Aug. 26. --Editors: Dennis Fitzgerald To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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