By Deborah Levine, MarketWatch NEW YORK (MarketWatch) -- Treasury prices advanced Friday, pushing long-term yields down by the most in more than three weeks, after a government report said that U.S. retail sales declined by a steeper-than-expected rate in October. Yields on 10-year notes fell 16 basis points, or 0.16%, to 3.70%. Bond prices move inversely to their yields. Retail sales fell a record 2.8% last month, the Commerce Department said. Excluding automobiles, sales fell 2.2%. Economists surveyed by MarketWatch expected total sales to decline 2.3% and sales excluding autos to fall 1.7%. See Economic Report. Separately, the Labor Department said prices of imported goods fell the most in two decades, plunging by 4.7% last month -- potential evidence that deflation is on its way, said strategists at RBS Greenwich Capital. "The longer end apparently likes both the data and tepid weakness in stocks," RBS said in a note. Bond prices remained higher after the Reuters/University of Michigan Surveys of Consumers said sentiment unexpectedly improved, though it remains at relatively low levels. The index reached 57.9 in early November from 57.6 in late October. Two-year note yields declined 7 basis points to 1.17% to remain near lows not seen in five years. Treasurys are headed for another week of gains, even after the government sold $55 billion in notes and bonds in its quarterly refunding this week. See related news. Rates going lower? U.S. Federal Reserve Chairman Ben Bernanke said in a speech in Frankfurt that challenges remain for the global economy and that policy makers stand ready to take additional action should conditions warrant. See The Fed. Barclays Capital said it expects the central bank to again lower its target lending rate for banks next month, this time to 0.75%. This would be the lowest rate since the Fed started announcing a target. Michael Pond, Treasury strategist at Barclays, pointed to the expectations for further monetary easing as well as a continued flight-to-liquidity bid into the front end of the Treasury yield curve. These are coinciding "as risk-taking dries up into the end of 2008," he said. Barclays is one of the 17 primary security dealers that traders with the Fed. Such a trading backdrop for Treasurys should extend the recent rally in two-year notes, taking yields to 0.90% by the end of the year, he said. Treasurys also climbed earlier as European economic data showed that the 15-nation euro zone fell into a recession. See full story. Concern about how the government will use the $700 billion that Congress authorized early last month has similarly sent short-term lending markets back up for the last few days. The London interbank offered rate, or Libor, for three-month dollar loans edged above 2.23% from just below 2.15% Thursday, the British Bankers Association reported. "There continues to be a great deal of angst about the Treasury's decision to broaden its policy efforts beyond the banking sector," said Kevin Giddis, managing director of fixed income for Morgan Keegan & Co. "The absence of a coherent economic policy and the waning confidence in policymakers' willingness to actually carry out stated policy actions may in fact bring about yet another chapter of the painful credit crisis," Giddis said.

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