Treasury notes rose for the first time in four days as the U.S. economy shrank more than forecast and speculation increased that a third bailout for Citigroup Inc. will fall short, increasing investor demand for relative safety. The MSCI World Index of shares was down 1.1 percent and futures on the Standard & Poor’s 500 Index dropped 2.3 percent. “The Citi news is more of a factor, and that’s giving a flight-to-quality bid,” Jeffry Feigenwinter, head of Treasury trading at BNP Paribas Securities Corp. in New York, said before the report. The firm is one of the 16 primary dealers that trade with the Fed. “The market is not liking the impact and the fear that they will be nationalized because they are too big to fail.” The yield on the 10-year note fell six basis points, or 0.06 percentage point, to 2.93 percent at 8:46 a.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 increased 15/32, or $4.69 per $1,000 face amount, to 98 14/32. “It’s a nasty picture,” said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking arm of Credit Agricole SA. “We’re still looking for U.S. Treasury yields to head lower toward 2.50 percent.” GDP, Citigroup Gross domestic product contracted at a 6.2 percent annual pace from October through December, more than economists anticipated and the most since 1982, according to revised figures from the Commerce Department today in Washington. That compares with a 3.8 percent drop the department estimated in its advance report last month. The median forecast of 74 economists surveyed by Bloomberg News was for a 5.4 percent decline. Ten-year yields, which slid to a record low of 2.04 percent on Dec. 18, were headed for a monthly loss after President Barack Obama announced a proposed budget that will result in a record $1.75 trillion deficit. To support Citigroup, the Treasury Department will convert as much as $25 billion of preferred shares into common stock, it said in a statement today. The government said it will make the swaps only if private holders agree to the same terms. Consumer prices were unchanged in the 12 months ended Jan. 31, the Labor Department said Feb. 20, which shows bond investors aren’t losing anything to inflation. The so-called real yield of 2.93 percent was near the highest since 2006. The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, was 99 basis points, compared with 137 basis points on Feb. 9. The figure has averaged 225 basis points for the past five years. Treasury Losses Treasuries fell 0.4 percent in February after a 3.1 percent loss in January that was the most in almost five years, according to Merrill Lynch & Co.’s U.S. Treasury Master index. A 3.5 percent decline so far this year compares with a 1.9 percent gain for the same period in 2008. The record budget deficit forecast for the year ending Sept. 30, announced yesterday by Obama, represents about 12 percent of the nation’s gross domestic product, the most since World War II. “We sold this week because of the fear of further issuance,” said Satoshi Okumoto, general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has $58.1 billion in assets. “This is a bad time for the bond market.” Obama’s budget seeks authority for as much as $750 billion in new aid to the financial industry while laying plans for a health-care system overhaul and almost $1 trillion in higher taxes for 2.6 million of the richest Americans. Two-year Treasury yields rose as high as 1.11 percent this week, the most since November, as the U.S. government auctioned a record $94 billion of debt. The two-year yield dropped seven basis points today to 1.02 percent and was more than 75 basis points more than the high end of the Federal Reserve’s target range for overnight bank loans, zero to 0.25 percent.

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