By Wes Goodman May 26 (Bloomberg) -- Treasuries fell, pushing yields up from the lowest level in a year, as stocks stabilized before a government report today that economists said will show U.S. factory orders increased. Notes also snapped a two-day gain as the U.S. prepared to sell $40 billion of five-year securities today, the second of three auctions this week totaling $113 billion. The U.S.’s top bond rating will come under pressure unless the government cuts record budget deficits, Moody’s Investors Service Inc. said. “Yields will move up,” said Kei Katayama, who helps oversee the equivalent of $37.9 billion as leader of the foreign fixed-income group at Daiwa SB Investments Ltd. in Tokyo. “Supply will still be huge. The economy is looking solid.” The yield on the benchmark 10-year note rose three basis points to 3.19 percent as of 1:29 p.m. in Tokyo, according to data compiled by Bloomberg. The 3.5 percent security due May 2020 fell 1/4, or $2.50 per $1,000 face amount, to 102 5/8. The yield dropped to 3.06 percent yesterday, the lowest level since April 29, 2009, as the European credit crunch increased demand for the safest securities. MSCI’s Asia Pacific Index of regional shares rose 0.9 percent today, the biggest gain in almost two weeks. The euro cut an initial 0.6 percent decline in half, helping erode demand for the relative safety of U.S. debt. Bookings for durable goods increased 1.3 percent in April after a 1.2 percent decline in March, according to a Bloomberg News survey of economists. New home sales may have climbed to an annual rate of 425,000 last month, the most since September 2008, a separate Bloomberg survey showed. The Commerce Department issues both figures today. ‘Substantially Worsened’ U.S. finances have been “substantially worsened by the credit crisis, recession, and government spending to address these shocks,” Moody’s analysts lead by Steven A. Hess wrote in a report yesterday. “The ratios of general government debt to GDP and to revenue are deteriorating sharply, and after the crisis they are likely to be higher than the ratios of other Aaa-rated countries.” The U.S. retains its top rating for now because of a “high degree of economic and institutional strength,” the New York- based ratings company said in its statement. The outlook is stable, Moody’s said. The five-year notes being sold today yielded 2.01 percent in pre-auction trading, compared with 2.54 percent at the prior sale on April 28. Lowest Yield Investors bid for 2.75 times the amount on offer last month, above the average of 2.57 for the past 10 auctions. Indirect bidders, the category of investors including foreign central banks, bought 48.9 percent of the notes, up from 39.7 percent at the March sale. Direct bidders, non-primary dealers that place their bids with the Treasury, bought 14.3 percent, the most since October 2008. The 18 companies registered with the Federal Reserve as primary dealers are required to bid at the auctions. An auction of $42 billion of two-year notes yesterday drew the lowest yield on record, 0.769 percent. The Treasury will conclude this week’s note sales with $31 billion of seven-year debt tomorrow. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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