Treasuries fell, after seven-year yields matched the record low set yesterday, as some investors said U.S. government securities are vulnerable to a pickup in economic growth. Greece’s struggle to stay in the euro bloc has driven an eight-week rally in Treasuries. The securities returned 3.2 percent since yields reached this year’s highest closing level on March 19 through yesterday, according to Bank of America Merrill Lynch indexes. Investors tracking the MSCI All-Country World Index of stocks lost 7.3 percent in the period, including reinvested dividends. “The Treasury market is a bubble,� said Kei Katayama, who invests in U.S. debt in Tokyo at Daiwa SB Investments Ltd., which is a unit of Japan’s second-largest securities company and has the equivalent of $62.1 billion in assets. “It may continue for a while, but yields should go up. The U.S. is stronger than other economies.� Benchmark 10-year yields increased two basis points to 1.78 percent as of 7:17 a.m. in London, according to Bloomberg Bond Trader data. The 1.75 percent security due in May 2022 declined 1/8, or $1.25 per $1,000 face amount, to 99 23/32. The record low was 1.67 percent set Sept. 23. Seven-year notes yielded 1.19 percent, after matching the all-time low of 1.1679 percent set yesterday. Katayama said the rally isn’t making him change his strategy of favoring shorter maturities, which investors use to protect themselves in case yields rise because they are among the least volatile. Faster U.S. Growth U.S. gross domestic product will grow 2.3 percent in 2012, versus 1.7 percent in 2011, a Bloomberg News survey of economists shows. The euro-area economy will shrink 0.3 percent, versus last year’s 1.5 percent growth rate, according to economist estimates. Greece’s inability to form a government reignited concern the country will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since 2010, pushing borrowing costs higher and leading the nation to leave the euro area. Greek 10-year rates have risen to 27.6 percent from 21.1 percent a month ago. “We could see panic buying� in Treasuries, said Hideo Shimomura, who helps oversee the equivalent of $75.2 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest publicly traded bank. “Europe is in a recession and it could spread.� Shimomura said he is adding to his holdings of long-term Treasuries and may buy today. Eight-Week Rally Yields on 30-year bonds will fall to 2.5 percent in the next two months from 2.93 percent now, he said. The debt has surged 11 percent during the eight-week rally, while two-year notes returned 0.3 percent, the Bank of America figures show. Overseas demand for U.S. assets probably increased in March, according to a Bloomberg survey of economists before a Treasury Department report today. Net purchases of long-term U.S. bonds, stocks and other assets by investors outside the nation rose to $32.5 billion from $10.1 billion in February, based on the median estimate. The U.S. consumer price index was probably unchanged in April, following a 0.3 percent gain in March, based on a Bloomberg survey of banks and securities companies before the Labor Department reports the figure today. Retail Sales Retail sales growth slowed to 0.1 percent in April from 0.8 percent in March, a separate survey shows, before the Commerce Department report. The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.14 percentage points. The figure matches the average over the past decade. The Federal Reserve plans to sell as much as $8.75 billion of Treasuries due from February 2014 to May 2014 today, according to the Fed Bank of New York’s website. The sales are part of the central bank’s program to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of June to help keep borrowing costs down. Bill Irving, manager of the Fidelity Inflation-Protected Bond Fund (FINPX), said he is “cautious� about conventional U.S. debt and Treasury Inflation Protected Securities. “They are vulnerable in the event that GDP growth strengthens and yields increase back to more normal long-term levels,� he wrote in a report on the company’s website yesterday. Fidelity Investments, based in Boston, oversees $1.61 trillion. 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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