By Anna Rascouet and Wes Goodman Feb. 10 (Bloomberg) -- Treasuries rose before the release of Federal Reserve Chairman Ben S. Bernanke’s testimony to Congress about withdrawing stimulus funds, as reports diverge about the strength of the economic recovery. The gains drove the two-year yield down from near its highest level in almost a week, even as the U.S. prepared to sell a record-matching $25 billion of 10-year notes today, the second of three auctions this week totaling $81 billion. While stocks rose and economists say data tomorrow will show retail sales climbed 0.3 percent in January, Goldman Sachs Group Inc. said yesterday growth is poised to slow. “The overall situation is far from certain,” said David Schnautz, an interest-rate strategist at Commerzbank AG in Frankfurt. “Treasuries remain the safe haven. There could be another wave of stress so staying in Treasuries is definitely warranted.” The yield on the two-year note fell 2 basis points to 0.81 percent as of 9:10 a.m. in London, according to BGCantor Market Data. The 0.875 percent security due in January 2012 climbed 1/32, or 31 cents per $1,000 face amount, to 100 4/32. The yield on the 10-year security fell 2 basis points to 3.63 percent. Bernanke’s testimony on the Fed’s exit strategy will be released at 10 a.m. in Washington. He was originally scheduled to speak before the House Financial Services Committee on “Unwinding Emergency Federal Liquidity Programs and Implications for Economic Recovery.” The hearing was postponed due to snow and hasn’t been rescheduled. Retail Sales Retail sales posted the third gain in four months, according to the median forecast of 51 economists surveyed by Bloomberg News before Commerce Department figures Feb. 11. The MSCI World Index climbed for a second day, advancing 0.3 percent. Ten-year yields increased nine basis points yesterday, the most since Dec. 21, on speculation Europe will arrange a financial rescue for Greece, damping demand for the relative safety of U.S. debt. Greek Prime Minister George Papandreou’s struggle to contain the European Union’s largest budget deficit had sent the euro to an eight-month low and pushed up bond yields in the region, threatening the stability of financial markets. Spread Near Record The difference between two- and 10-year rates was 2.82 percentage points, near the record 2.90 percentage points set Jan. 11. Two-year rates tend to track the Federal Reserve’s target for overnight lending because of their shorter maturity. Yields on longer-term bonds are more influenced by inflation and by the size of the government’s debt. Consumer spending will decelerate this year, Ed McKinley, senior U.S. economist at Goldman in New York, wrote in a report yesterday. “Growth will slow materially during the first half of 2010,” the report said. Goldman is one of the 18 primary dealers that are required to bid at the government debt sales. The pace of expansion will slow to 2.7 percent in the first quarter from 5.7 percent in the final three months of last year, Bloomberg surveys of banks and securities companies show. German Finance Minister Wolfgang Schaeuble briefed lawmakers today on steps he may take to aid Greece. Michael Meister, financial-affairs spokesman for Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday the government is “considering support.” Rescue Plan Signs of a rescue helped ease investor concern that worsening government finances in Europe would derail the global recovery from last year’s economic recession. Greek bonds surged for a second day. The yield on the Greek 10-year bond yesterday slid the most in at least 12 years. “If a rescue plan passes, the flight to quality will unwind,” said Tsutomu Komiya, who handles U.S. government debt in Tokyo at Daiwa Asset Management Co., which has $77 billion in assets. “Risk assets and bond yields will rise.” The notes scheduled for sale today yielded 3.64 percent in pre-auction trading, compared with 3.754 percent at the previous sale of the securities on Jan. 13. Investors bid for 3 times the amount on offer last month, versus an average of 2.76 times for the past 10 auctions. Indirect bidders, the group that includes foreign central banks, bought 29 percent of the securities, versus the 10-sale average of 39.3 percent. The Treasury sold $40 billion of three-year notes yesterday and is scheduled to auction $16 billion of 30-year bonds tomorrow. At the three-year sale, investors bid for 2.83 times the available debt, compared with an average of 2.85 for the past 10 auctions. To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.netWes Goodman in Singapore at wgoodman@bloomberg.net.

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