By Wes Goodman May 21 (Bloomberg) -- Treasuries fell, trimming yesterday’s biggest rally in 14 months, on speculation European finance ministers meeting today will take further steps to stem a rout in the region’s currency. Longer-maturity bonds led the decline as Treasury Secretary Timothy F. Geithner scheduled a trip to Germany and the U.K. for next week to help restore confidence in financial markets. Demand for debt also waned after yields yesterday fell to the lowest level this year. Notes still headed for a weekly advance on concern a Greek debt crisis is spreading, sending stocks down around the world. “European officials may offer a coordinated stance in supporting Greece and the euro,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will slow the flight to quality.” The yield on the benchmark 10-year note rose three basis points to 3.25 percent as of 7:07 a.m. in London, according to data compiled by Bloomberg. The 3.5 percent security due May 2020 fell 5/32, or $1.56 per $1,000 face amount, to 102 1/4. Ten-year yields, a benchmark for consumer and company borrowing costs, declined 16 basis points yesterday and slid as low as 3.20 percent, a level not seen since Dec. 1. The euro rebounded from a four-year low set earlier in the week. The MSCI Asia Pacific Index fell 1.5 percent, sliding for a sixth day, following losses in U.S. and European stocks. ‘Chaos’ “It’s chaos,” said Rob da Silva, who helps oversee $222 billion globally as managing director of fixed income for Asia and the Pacific in Sydney at Principal Global Investors, a unit of part of Principal Financial Group Inc. in Des Moines, Iowa. “We’re seeing panic and confusion and concern.” Volatility in the Treasury market surged over the past week, Merrill Lynch & Co.’s Move index shows. The gauge rose to 110.9 yesterday, approaching this year’s high of 116.7 set May 6. The index measures price swings in Treasuries based on over-the- counter options maturing in two to 30 years. Geithner “will meet with European officials to discuss the economic situation in the region and the measures being taken to restore global confidence and financial stability,” the Treasury Department said yesterday in a statement. German Plan German Finance Minister Wolfgang Schaeuble is scheduled to present a plan to his euro-area counterparts to avoid a repeat of the fiscal crisis touched off by Greece’s budget deficit. The proposal includes calls for faster budget cuts and the option of an “orderly state insolvency” for euro countries. This week’s decline in 10-year yields narrowed the difference over two-year rates to as little as 2.49 percentage points today, the least since November. Traders cut bets on inflation. The spread between rates on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, shrank to 1.85 percentage points yesterday, the least since October. The U.S. consumer price index fell 0.1 percent in April from March, the first decline in more than a year, the Labor Department reported May 19. U.S. 30-year average fixed-mortgage rates dropped to 4.90 percent yesterday, the least since Dec. 1, according to Bankrate.com in North Palm Beach, Florida. Europe Crisis Treasuries climbed yesterday as speculation Europe’s sovereign-debt crisis is worsening drove investors to the relative safety of U.S. bonds. The 10-year yield may drop to 2.5 percent as investors lose confidence in some European nations’ ability to pay their debts, Royal Bank of Scotland Group Plc said. France’s Finance Minister Christine Lagarde said the 16 countries that share the euro need greater coordination. “Risk appetite is being savaged,” Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest inter-dealer broker, wrote in a note to clients. Treasuries returned 1.97 percent this month and German bonds gained 2.15 percent, Bank of America Merrill Lynch indexes show, as investors sought the relative safety of these two markets. Japanese government securities were little changed. U.S. company bonds fell 0.7 percent, based on the indexes. The MSCI World Index of shares slumped 11.1 percent, according to data compiled by Bloomberg. Yields indicate banks have become less willing to lend because of the European crisis. The London interbank offered rate, which banks pay for three-month loans in dollars, rose to 0.48 percent yesterday, the highest level since July, according to the British Bankers’ Association. The extra yield that Libor offers over the overnight indexed swap rate, the Libor-OIS spread, widened to 26 basis points today, the most since August. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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