By Keith Jenkins April 20 (Bloomberg) -- Treasury yields increased from almost the lowest level in four weeks as a gain in U.S. stock- index futures reduced demand for the relative safety of government debt. Demand for higher-yielding assets rose as Goldman Sachs Group Inc., facing a fraud lawsuit from U.S. regulators, reported first-quarter earnings that surpassed analysts’ estimates on record fixed-income trading revenue. “Treasuries are being influenced by developments in equities in this risk-on, risk-off environment,” said Orlando Green, an interest-rate strategist at Credit Agricole SA in London. “Equity markets have shrugged off some of the concerns about the financial sector and have been reasonably bullish.” The two-year note’s yield rose 2 basis points, or 0.02 percentage point, to 1.01 percent at 8:02 a.m. in New York, according to BGCantor Market Data. The yield touched 0.93 percent yesterday, the lowest level since March 18. The price of the 1 percent security due in March 2012 fell 1/32, or 31 cents per $1,000 face amount, to 99 31/32. Standard & Poor’s 500 Index futures expiring in June increased 0.4 percent in part on Goldman Sachs’s earnings. The New York-based bank is defending itself against the Securities and Exchange Commission’s claim that the company misled investors in 2007. European equities advanced as German investor confidence rose in April. The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations was 53, compared with 44.5 in March. The median forecast of 36 analysts in a Bloomberg News survey was for a reading of 45.1. ‘Firm Undertone’ “The equity market will maintain a firm undertone, reflecting expectations about the sustained recovery,” said Masashi Nakamura, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “This will fuel some upward pressure on Treasury yields.” Yields on 10-year notes increased 1 basis point to 3.81 percent. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for gains in consumer prices, was little changed at 2.33 percent after narrowing for two straight days. Federal Reserve Bank of Chicago President Charles Evans told Chicago public-television station WTTW’s “Chicago Tonight” program yesterday that it’s “appropriate” to keep borrowing rates low even as the recession is “definitely over.” Inflation View “The Fed will maintain its current interest-rate policy for the time being as inflationary pressures remain low,” said David Schnautz, a fixed-income strategist at Commerzbank AG in Frankfurt. “The breakeven rate for 10-year Treasuries is hovering close to the 2.30 percentage-point mark, which suggests that inflation is not on the radar screen currently.” Wholesale prices excluding food and energy costs increased 0.1 percent in March, the same as the prior month, according to a Bloomberg survey before the Labor Department reports the figure on April 22. Indications the central bank will keep the main interest rate at a record low for longer have helped send 10-year yields down from 4.01 percent on April 5, the highest level since October 2008. Futures on the CME Group Inc. exchange showed a 46 percent chance the U.S. central bank will raise its target rate for overnight bank lending by at least a quarter-percentage point by its November meeting, down from 62 percent odds a month ago. The Fed has kept its target in a range of zero to 0.25 percent since December 2008. Durable Goods Orders Bookings for goods meant to last several years may have advanced for a fourth month, based on the Bloomberg surveys ahead of the Commerce Department report on April 23. Existing- home sales on April 22 and new-home sales the following day will both show gains for March, the surveys show. Fed Chairman Ben S. Bernanke is scheduled to testify today at a House committee hearing on the 2008 bankruptcy of Lehman Brothers Holdings Inc. Treasury Secretary Timothy Geithner and SEC Chairman Mary Schapiro will also appear. Ten-year yields slid 7 basis points on April 16 after the SEC sued Goldman for fraud tied to collateralized debt obligations, spurring demand for the safety of government debt. South Korea’s National Pension Service plans to reduce holdings of U.S. government debt to diversify bond investments, the Chosun Ilbo reported, citing government and pension officials it didn’t identify. National Pension held U.S. Treasuries worth 4.06 trillion won ($3.6 billion) at the end of 2009, according to the Korean-language newspaper. Kyungjik Lee, who is in charge of overseas debt and stocks for the service in Seoul, declined to comment on the report. To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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