By Paul Dobson and Theresa Barraclough Feb. 4 (Bloomberg) -- Treasuries advanced as speculation European countries will face increasing difficulty financing their budget deficits sent stocks around the world lower, boosting demand for the safest fixed-income assets. The 10-year note’s yield fell from the highest level in two weeks after European Union Monetary Affairs Commissioner Joaquin Almunia said yesterday Greece’s and Portugal’s funding needs are big. The U.S. Treasury said yesterday it doesn’t need to increase the size of debt sales. U.S. factory orders climbed at a slower pace in December than in the previous month, according to a Bloomberg survey before a report today. “The problem of financing debt is currently the driver, coming mainly from Europe,” said Kornelius Purps, a fixed- income strategist at UniCredit SpA in Munich. “There is still a high degree of uncertainty in the market, and this is supporting demand.” The yield on the benchmark 10-year note fell two basis points, or 0.02 percentage point, to 3.68 percent at 7:02 a.m. in New York, according to BGCantor Market Data. The 3.375 percent note due in November 2019 gained 5/32, or $1.56 per $1,000 face amount, to 97 15/32. The yield climbed earlier to 3.71 percent, the highest level since Jan. 19. The two-year note’s yield slipped two basis points to 0.86 percent, and the 30-year bond yield dropped three basis points to 4.61 percent. Europe’s Dow Jones Stoxx 600 Index decreased as much as 1.2 percent, and the MSCI Asia Pacific Index of shares dropped 0.8 percent. Portugal’s Debt Portugal’s bonds fell today on concern the nation will struggle to cut its budget deficit. Reducing it will require “difficult” measures, and the economy is unlikely to catch up with European counterparts any time soon, the central bank’s Governor Vitor Constancio said Feb. 2. The U.S. Treasury, in its quarterly refunding announcement yesterday, said it will sell a record-matching $40 billion in 3- year securities, $25 billion of 10-year debt and $16 billion in 30-year bonds next week. The auctions will be held over three days starting Feb. 9. The government “believes that the current auction calendar provides debt managers with sufficient flexibility to address a range of expected borrowing needs,” said Matthew Rutherford, the Treasury’s deputy assistant secretary for federal finance, according to minutes of an advisory committee meeting. Treasury Sales The Treasury also said it’s considering more frequent sales of Treasury Inflation Protected Securities, or TIPS, to improve liquidity. One possible addition is a second reopening of 10- year TIPS, which would start in July if implemented, the department said. Orders placed with U.S. factories increased 0.5 percent in December after a 1.1 percent gain in the previous month, according to the median estimate of 66 economists in a Bloomberg News survey. The report from the Commerce Department is due at 10 a.m. in Washington. U.S. payrolls rose by 15,000 workers last month after an unexpected loss of 85,000 in December, according to a separate Bloomberg survey before tomorrow’s report. “If payrolls are stronger, there will be a re-pricing at the short end of the market,” said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. “Two-year yields below 1 percent are not sustainable.” To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net

Source