By Cordell Eddings and Dakin Campbell Nov. 14 (Bloomberg) -- Treasuries rose, led by longer-term securities, as a report showing U.S. retail sales fell the most on record in October drove investors to the relative safety of government debt. The rally in longer-term securities, amid concern a deepening slump will further erode corporate earnings, narrowed the yield difference between two- and 10-year notes from the highest since 2003. The Group of 20 heads of state are meeting in Washington amid divisions over what steps to take to shore up the slowing global economy. Stocks retreated. ``We are not getting a lot of warm and fuzzy numbers about the economy,'' said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. ``The weaker-than-expected retail sales number and another equity sell-off are supporting the flight-to- quality bid into the Treasuries.'' The 10-year note's yield tumbled 14 basis points, or 0.14 percentage point, the most in eight days, to 3.71 percent at 4:13 p.m. in New York, according to BGCantor Market Data. The notes were sold at a yield of 3.78 percent on Nov. 12. The 3.75 percent security due in November 2018 rose 1 4/32, or $11.25 per $1,000 face amount, to 100 10/32. The yield on two-year notes fell 3 basis points to 1.20 percent and is down 13 basis points this week. Ten-year yields fell 8 basis points for the week. The gap, or spread, between yields on two- and 10-year notes, the so-called yield curve, narrowed to 2.51 percentage points from 2.62 percentage points yesterday, the widest in five years. Conflicting Approaches Sales at U.S. retailers dropped 2.8 percent last month, the Commerce Department said today in Washington. It was the fourth consecutive drop and the biggest since records began in 1992. Conflicting approaches to global economic turmoil are expected at the two-day G-20 summit. German Chancellor Angela Merkel said today she wants ``more rules so as to prevent us from ever having to face such a situation again.'' President George W. Bush, even after he backed bailouts of American International Group Inc. and Bear Stearns Cos., said the ``aim should not be for more government.'' Treasury Secretary Henry Paulson said creating a single, international regulator of global finance wouldn't be ``practical.'' The financial system ``has been stabilized,'' he said in a Fox News interview scheduled to air tomorrow. The U.S. economy is likely already in a recession, which probably will be ``beyond just a `garden variety' downturn,'' Federal Reserve Bank of Cleveland President Sandra Pianalto said in a speech in Cleveland. She is a voting member of the Federal Open Market Committee this year. Global Central Bankers Fed Chairman Ben S. Bernanke said central bankers worldwide are prepared to take additional actions to unfreeze credit markets, without saying what those would be. He spoke in Frankfurt at a European Central Bank conference. Mortgage finance company Freddie Mac, seized by the government two months ago, asked the Treasury for $13.8 billion after reporting a record loss of $25.3 billion in the third quarter. Traders increased bets policy makers will cut interest rates at their Dec. 16 policy meeting. Futures on the Chicago Board of Trade show an 86 percent chance the Fed will lower its 1 percent target rate for overnight bank lending by half a percentage point. The odds were 64 percent a week ago. ``People do expect rate cuts for the U.S.,'' said William O'Donnell, a U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut. UBS is one of 17 primary dealers that trade with the Fed. ``As Bernanke said, there's more that central banks can do.'' European Recession Treasuries declined yesterday as demand fell at a $10 billion auction of 30-year bonds and U.S. stocks rallied. Thirty-year yields dropped 13 basis points today to 4.22 percent after rising 19 basis points yesterday, the most since Sept. 30. For the week, they fell 7 basis points. U.S. government debt gained earlier after Europe's economy fell into its first recession in 15 years. The region's gross domestic product shrank 0.2 percent in the third quarter from the previous three months, when it also contracted 0.2 percent, the European Union's statistics office said today. ``The market is still expecting weak data to continue and more from the Fed in terms of liquidity,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, another primary dealer. He said he is ``bullish'' on the U.S. Treasury market and expects yields on two-year securities to drop below 1 percent because of further demand for shorter-term debt. The Standard & Poor's 500 Index lost 4.2 percent. TED Spread The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans in dollars rose for a second day. It increased 9 basis points to 2.24 percent, according to British Bankers' Association data. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 2.10 percentage points, from 2.01 percentage points a week ago. It was 4.64 percentage points on Oct. 10. Treasuries have returned 6.1 percent this year, according to Merrill Lynch & Co.'s U.S. Treasury Master Index, as investors sought the safest securities amid the global economic slump. Corporate bonds declined almost 13 percent in the same period, a separate Merrill index shows. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net.

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