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Treasury Yield Near Four-Week Low as Greek Concern Spurs Demand

The Treasury 10-year yield fell to the lowest level in four weeks as concern Greece will need to tap emergency loans to avoid default pushed down stocks and boosted demand for the relative safety of U.S. government debt.

U.S. securities were little changed after reports showed producer prices rose and initial claims for jobless benefits fell less than forecast. The difference between 2- and 10-year yields was close to a one-month low as Greece’s 10-year bonds slid for a eighth consecutive day, pushing yields to more than twice that of benchmark German bunds. President Barack Obama is scheduled to speak in New York on financial regulation.

“The overwhelming concern in the bond market is still the fallout from the Greece situation, which is adding to a flight to quality,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “Everyday that goes by, the Greece story continues to erode confidence.”

The 10-year note yielded 3.73 percent at 10:25 a.m. in New York, according to BGCantor Market Data. It touched 3.71 percent, the lowest since March 24. The 3.625 percent security due February 2020 rose 1/32, or 31 cents per $1,000 face amount, to 99 1/8.

Stocks dropped, with the Standard & Poor’s 500 Index falling 0.9 percent.

The yield difference between two- and 10-year securities shrank to 2.72 percentage points yesterday, also the lowest since March 24, before trading at 2.73 percentage points today. The spread widened to a record 2.94 percentage points Feb. 18.

Home Sales

Sales of U.S. previously owned homes rose in March for the first time in four months as buyers took advantage of a government tax credit and the weather improved. Purchases climbed 6.8 percent to a 5.35 million annual rate, from a 5.01 million pace in February, figures from the National Association of Realtors showed today in Washington.

“Even with better-than-expected economic data, the problems overseas in Greece are still causing a flight to quality,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida for SunTrust Bank’s private wealth management division.

Initial jobless applications dropped by 24,000 to 456,000 in the week ended April 17, the Labor Department said today in Washington. Economists in a Bloomberg News survey forecast claims would fall to 450,000. The producer price index rose 0.7 percent in March, more than forecast, the department said.

‘Somewhat of a Wash’

“The data was somewhat of a wash,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “The PPI data come out a little higher than expected and continuing claims was a little weaker, but there was not a lot to bite on.”

Concern the fiscal crisis in Greece would slow the global economic recovery has helped send Treasury 10-year yields down from the 4.01 percent they reached on April 5, the highest level since October 2008.

The European Union said today that Greece’s deficit in 2009 was worse than previously forecast. EU officials lifted their estimate above 13 percent of gross domestic product and said it could top 14 percent. The extra yield investors demand to hold Greek 10-year bonds instead of German bunds climbed to a record 550 basis points.

The U.S. will sell $44 billion in two-year notes, $42 billion in five-year securities, $32 billion in debt maturing in seven years and $10 billion in five-year Treasury Inflation Protected Securities next week, according to the average estimate of nine primary dealers in a Bloomberg survey. It will announce the amounts at 11 a.m. in Washington today.

Supply May Fall

The supply of Treasuries may fall by $52 billion for the rest of fiscal 2010 and drop by $589 billion in fiscal 2011, James Caron, head of U.S. interest-rate strategy at primary dealer Morgan Stanley in New York, wrote in a note to clients.

Obama’s administration has boosted marketable U.S. debt to a record $7.76 trillion, Treasury figures show. Obama’s proposed budget calls for a $1.6 trillion budget deficit in 2010, compared with last year’s record $1.4 trillion gap.

“We may be approaching the last hurrah in terms of record weekly supply,” said David Schnautz, a fixed-income strategist at Commerzbank AG in Frankfurt. “We have to make room for next week’s supply avalanche, but in the medium term, less supply may provide an underlying supportive factor.”

Gains for bonds have been tempered by data showing the economic recovery in gaining traction. Bookings for goods meant to last several years rose for a fourth month in March, according to a Bloomberg News survey before the Commerce Department report tomorrow.

Obama will say today that the U.S. risks dooming itself to a repeat of the economic crisis unless tougher financial industry regulations are enacted by Congress.

The U.S. was almost dragged into a second Great Depression by “a failure of responsibility -- from Wall Street to Washington,” Obama will say later this morning in a speech at Cooper Union in New York, according to excerpts released by the White House.

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