Treasuries headed for their steepest weekly loss in five months after Greece staved off defaulting on its debt, bolstering expectations that economic growth will pick up in the second half of the year. Traders added to bets on U.S. inflation for a seventh day, the longest streak since March 2010. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the next decade, widened to 2.39 percentage points from this year’s low of 2.14 percentage points set last month. “The risk that Greece will default in the short term is gone,” said Takuya Yamamoto, who helps oversee the equivalent of $118.4 billion as a portfolio manager in Tokyo at Diam Co., a unit of Japan’s second-biggest life insurer. “The U.S. economy will move past this soft patch and gradually recover.” Diam reduced the average maturity of its Treasury holdings in June, Yamamoto said, favoring debt that will fall less if rates rise. Ten-year yields were little changed at 3.15 percent as of 6:54 a.m. in London, according to Bloomberg Bond Trader prices. The 3.125 percent note maturing in May 2021 traded at 99 3/4. The yield climbed 29 basis points this week, the biggest increase since the period ended Feb. 4. Two-year rates advanced 11 basis points this week, less than 10-year yields, because they are more influenced by the Federal Reserve’s target for overnight bank lending. The central bank has kept the target in a range of zero to 0.25 percent since December 2008. The difference between two- and 10-year yields expanded to 2.71 percentage points, the widest in two months. Japanese Bonds Japan’s 10-year rates rose 3.5 basis points this week to 1.14 percent, the biggest increase in almost three months. Nationwide consumer prices rose, unemployment fell, and companies forecast increased hiring and investment in the Tankan survey, government and central-bank reports today showed. U.S. 10-year rates climbed to 2.03 percentage points more than their Japanese counterparts yesterday, the biggest spread in six weeks. Greek Prime Minister George Papandreou’s drive to stave off the euro area’s first sovereign default stayed on track after lawmakers this week backed government austerity plans required to obtain rescue aid. The MSCI All Country World Index of stocks returned 4.35 percent this week, after accounting for reinvested dividends, according to data compiled by Bloomberg. An index of U.S. high-yield bonds gained 0.58 percent as of yesterday, while Treasuries have handed investors a loss of 1.28 percent, based on Bank of America Merrill Lynch data. ‘Another Hurdle’ The threat of a Greek default had raised concern that European economic growth would slow and drag down the pace of the global expansion. “It’s another hurdle that’s been crossed,” said Chris Ahrens, head U.S. rates strategist in Stamford, Connecticut, at UBS AG, a primary dealer. “The better performance of risk assets is weighing on Treasuries.” U.S. manufacturing growth slowed and consumer sentiment fell in June, economists said before two industry reports today. The slowdown at factories, tied to the March earthquake in Japan, may reverse as supplies and auto components flow from the Asian nation’s factories to the U.S., said economists including Sal Guatieri at BMO Capital Markets in Toronto. Treasuries also fell this week as the Fed yesterday completed its $600 billion bond-purchase program, which was aimed at capping borrowing costs. “Who will buy them now?” Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Company, said in a Twitter posting yesterday. Gross, who is based in Newport Beach, California, had 5 percent of his fund’s assets in Treasuries and 35 percent in money-market securities at the end of May, according to Pimco’s website. The 10-year yield will climb to 3.64 percent by year-end, according to a Bloomberg survey of financial companies with the most recent forecasts given the heaviest weightings. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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