By Wes Goodman Feb. 17 (Bloomberg) -- Treasuries fell for the first time in three days before U.S. reports that economists said will show industrial production and housing starts gained last month. Longer maturities led the decline as Asian stocks advanced, helping erode demand for the relative safety of U.S. government debt. Greek Finance Minister George Papaconstantinou said yesterday the nation won’t need a bailout from the European Union, increasing demand for higher-yielding assets. “The U.S. economy will recover,” said Masaaki Sugihara, who helps oversee $12 billion in assets as head of foreign debt in Tokyo at Toyota Asset Management Co., a unit of Japan’s biggest carmaker. “Treasury yields will rise.” The yield on the 10-year note climbed two basis points to 3.68 percent as of 6:18 a.m. in London, according to data compiled by Bloomberg. The 3.625 percent security due in February 2020 dropped 5/32, or $1.56 per $1,000 face amount, to 99 18/32. MSCI’s Asia Pacific Index of shares rose 2 percent, the steepest gain since November. The U.S. 10-year yield will advance to 4 percent by year- end, Sugihara said. A Bloomberg survey of banks and securities companies projects the figure will be 4.15 percent, with the most recent forecasts given the heaviest weightings. The difference between two- and 10-year yields was 2.87 percentage points, near the record of 2.90 percentage points set Jan. 11. Home Starts Two-year rates tend to track the Federal Reserve’s target for overnight lending because of their shorter maturity. Fed Chairman Ben S. Bernanke on Feb. 10 repeated the central bank’s statement that low benchmark rates are warranted “for an extended period,” in testimony prepared for the House Financial Services Committee. Yields on longer-term bonds are more influenced by the size of the government’s debt and the outlook for inflation. The spread between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of trader expectations for consumer prices, was 2.27 percentage points, versus the five-year average of 2.16 percentage points. Production at factories, mines and utilities increased 0.7 percent in January after a 0.6 percent expansion the prior month, according to the median forecast in a Bloomberg News survey of economists before the Federal Reserve reports the figure today. U.S. builders broke ground on 580,000 houses at an annual pace last month, up 4.1 percent from December, a separate Bloomberg survey showed ahead of the Commerce Department report. No Bailout Need There is “no actual need” for a bailout of Greece, Papaconstantinou said yesterday after a meeting of finance ministers in Brussels to review the nation’s plan to trim its budget shortfall. “Greece has not asked for a bailout.” Treasuries rose yesterday after Fed Bank of Kansas City President Thomas Hoenig said the U.S. must take steps to reduce spending and increase revenue so the central bank isn’t pressured to fund the deficit. President Barack Obama’s administration estimates the budget shortfall will total $4.3 trillion during the next five years and rise to a record $1.6 trillion in the year ending Sept. 30. The U.S. must be “willing to disappoint a host of special interests” and tackle the debt, or it risks “its own next crisis,” Hoenig said at a policy forum hosted by the Peterson- Pew Commission on Budget Reform. ‘Fiscal Imbalance’ “Hoenig’s comments suggest the next big crisis will be over fiscal imbalance, which has some implications for correcting deficit spending,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The implication is less issuance or a slowing of the increases of issuance.” China sold the most U.S. debt in December since 2000, raising speculation it is turning bearish as Obama borrows unprecedented amounts to sustain economic growth. The nation’s investment in U.S. government securities dropped 4.3 percent to $755.4 billion, the Treasury Department reported yesterday. The Asian country allowed its short-term bills to mature and replaced them with a smaller amount of longer-term notes and bonds, the figures showed. Japan’s holdings rose 1.5 percent to $768.8 billion, making it America’s largest creditor. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

Source