May 22 (Bloomberg) -- Treasuries rose, trimming a weekly loss, after Federal Reserve Bank of Boston President Eric Rosengren said the U.S. recovery from the most severe economic recession in at least 50 years may be muted.

Notes gained as the comment bolstered the view among bond bulls that the U.S. economy isn’t strong enough to justify keeping 10-year yields at the highest level in six months.

“Yields are high and Treasuries look attractive,” said Sungjin Park, who helps oversee the equivalent of $49 billion as head of fixed income in Seoul at Samsung Investment Trust Management, South Korea’s largest investor. “The worst is over, but the economy is still in a negative situation.”

The yield on the 10-year note fell two basis points to 3.35 percent at 10:24 a.m. in Tokyo, according to BGCantor Market Data. The price of the 3.125 percent security due May 2019 rose 5/32, or $1.56 per $1,000 face amount, to 98 1/8. The yield reached 3.38 percent yesterday, a level not seen since Nov. 19.

“My best judgment is that a rather slow recovery is likely,” Rosengren said in a speech in Worcester, Massachusetts. “Unfortunately, such a forecast implies continued weakness in the labor market, and an unemployment rate that continues to rise through this year.”

The Securities Industry and Financial Markets Association recommended that trading of cash Treasuries close at 2 p.m. New York time and stay shut May 25 for the U.S. Memorial Day holiday.

Fed Purchases Disappoint

Treasuries fell yesterday, pushing yields on 10-year notes up by the most in two weeks, after the Fed bought a smaller amount of debt than some investors expected and the U.S. said it will sell $162 billion of notes and bills next week to finance the budget deficit.

The declines were led by longer-maturity notes and bonds, sending yields on 10-year securities to 2.5 percentage points above those on two-year notes, the most since November.

“We thought the Fed would have bought more,” said Michael Franzese, head of government bond trading for Standard Chartered in New York. “Supply is carrying a heavy amount of weight. Supply keeps coming and there’s no end in sight.”

Treasuries also fell, along with U.S. and European stocks, after Standard & Poor’s lowered its outlook on the U.K.’s AAA credit rating to “negative” from “stable,” raising concern that the same may happen to the U.S.

President Barack Obama’s administration has pushed the nation’s marketable debt to an unprecedented $6.36 trillion. It raised on May 11 its estimate for the deficit this year to a record $1.84 trillion, up 5 percent from the February estimate, and equal to about 13 percent of the nation’s GDP.

Credit Rating

“The markets are beginning to anticipate the possibility of” a downgrade to the U.S.’s top rating, though “it’s certainly nothing that’s going to happen overnight,” Bill Gross, the co-chief investment officer of Newport Beach, California- based Pacific Investment Management Co., said in an interview on Bloomberg Television. The firm manages the world’s biggest bond fund, the $150 billion Pimco Total Return Fund.

The U.S. will issue a record $3.25 trillion of debt in the fiscal year ending Sept. 30 to pay for a growing budget deficit, according to Goldman Sachs Group Inc., one of the 16 primary dealers that are obligated to participate in Treasury auctions.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

Last Updated: May 21, 2009 21:45 EDT