By Theresa Barraclough Jan. 29 (Bloomberg) -- Treasuries rose, paring this week’s decline, as losses in Asian stocks and concern Greece will fail to clean up its finances increased the appeal of U.S. debt. Ten-year notes gained for a second day after the German and French governments yesterday denied a report in the Le Monde newspaper that European Union member states are examining ways to give financial assistance to the Hellenic nation. The European Commission said this week Greece hasn’t done enough to rein in its deficit, which reached 12.7 percent of gross domestic product in 2009. “With this issue of Greek sovereign risk, people will want to hold safety assets, like Treasuries,” said Kei Katayama, who oversees $1.6 billion of non-yen debt in Tokyo as leader of the foreign fixed-income group at Daiwa SB Investments Ltd., a unit of Japan’s second-biggest investment bank. “As Germany and France denied newspaper reports about supporting Greece, there’s been an increase in uncertainty.” The yield on the benchmark 10-year note fell two basis points to 3.62 percent as of 1:06 p.m. in Tokyo, according to BGCantor Market Data. The yield is up one basis point this week. The 3.375 percent security due November 2019 rose 1/8, or $1.25 per $1,000 face amount, to 97 31/32. The MSCI Asia Pacific Index of shares dropped 1.2 percent, its ninth decline in 10 days. Greek Prime Minister George Papandreou said yesterday the nation is being victimized by rumors in financial markets as he denied seeking to borrow from European partners to finance the country’s budget deficit. ‘Lot of Risk’ “There is a lot of risk concern right now with regard to what’s happening in Europe and general economic uncertainty, which is benefiting the U.S. Treasury market,” said Christopher Bury, co-head of fixed-income rates at Jefferies & Co., one of the Federal Reserve’s 18 primary dealers that are required to bid at the government’s debt sales. The extra yield investors demand to hold Greek 10-year securities instead of similar maturity German bunds and U.S. Treasuries yesterday widened to 396 basis points and 352 basis points, respectively. The gain in Treasuries was tempered before a government report that economists say will show the world’s largest economy expanded last quarter at the fastest pace in almost four years. ‘Big Possibility’ “There’s a big possibility that today’s GDP data will be better than market expectations,” said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., part of Japan’s second-largest brokerage. “Investors will be reluctant to buy Treasuries because they are anticipating hikes in yields.” U.S. gross domestic product expanded at a 4.7 percent pace from October through December, more than double the growth rate in the prior three months and the most since the first quarter of 2006, according to a Bloomberg News survey. The economy shrank 3.8 percent in the 12 months to June, marking the worst recession since the 1930s. Consumer sentiment rose and a weak job market held down labor costs, other reports today will show according to separate Bloomberg surveys. The Federal Open Market Committee upgraded its economic outlook on Jan. 27 and Kansas City Fed President Thomas Hoenig dissented from the central bank’s pledge to keep interest rates at a record low for an “extended” period, saying he favored a quicker adjustment. The International Monetary Fund said in an update to its Global Financial Stability Report on Jan. 26 that the global financial system remains “fragile.” Low inflation will allow the world’s central banks to keep down interest rates, it said in a separate report the same day. The spread between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of trader expectations for consumer prices, was 2.31 percentage points, down from 2.41 percentage points at the end of last year. To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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