By Cordell Eddings and Susanne Walker Feb. 27 (Bloomberg) -- Treasuries advanced for the first time in three weeks as weaker-than-forecast economic reports and the threat of credit-rating downgrades for Greece spurred demand for the safety of U.S. government debt. Yields on 30-year bonds fell the most this week in six months as reports showed sales of new and existing homes unexpectedly tumbled, consumer confidence dropped and fourth- quarter consumer spending grew less than forecast. A report on March 5 is forecast to show that U.S. employers cut 50,000 jobs in February. “The government did a lot to prop up our economy and get things going, but there just has been no follow-through from consumers or employment,” said Justin Hoogendoorn, Chicago- based chief investment strategist at Bank of Montreal’s BMO Capital Markets unit. “Add the sovereign concerns and you have a lot of uncertainty.” The benchmark 10-year note yield fell 16 basis points, the most since the five days ended Nov. 27, to 3.62 percent, according to BGCantor Market Data. A basis point is 0.01 percentage point. The 3.625 percent security due February 2020 rose 1 10/32, or $13.13 per $1,000 face amount, to 100 2/32. The 30-year bond yield decreased 15 basis points, the most since Aug. 28, to 4.56 percent. The yield difference between 2- and 10-year notes, known as the yield curve, was at 2.81 percentage points after narrowing for a second week. It touched a record high of 2.94 percentage points on Feb. 18. Treasuries advanced for a second month, returning investors 0.12 percent after a 1.6 percent gain in January, according to Bank of America Corp.’s Merrill Lynch index data. Greece’s Ratings Standard & Poor’s and Moody’s Investors Service both said this week that Greece faces potential debt rating downgrades as it struggles to reduce the European Union’s biggest budget shortfall. “The situation in Greece has been a factor for the last few weeks,” said Tom Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities. “Any uncertainty will cause people to stay close to home or stay in quality products. Uncertainty helps the Treasury market.” Concern that Greek fiscal problems may spread boosted demand at a $32 billion auction of U.S. seven-year securities on Feb. 25. The number of bids was 2.98 times the securities offered, the highest since the note was reintroduced in February 2009 after a 16-year hiatus. The sale was the last of four auctions this week totaling a record $126 billion of 2-, 5- and 7-year notes and $8 billion of 30-year inflation-linked bonds. Supply ‘Well Absorbed’ “Supply surely hasn’t become the concern that many had feared and continues to be well absorbed,” Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-based brokerage firm, wrote in a note to clients. “Friendly data” and Federal Reserve Chairman Ben S. Bernanke’s congressional testimony this week did nothing to derail the positive sentiment, he said. Bernanke said the U.S. economy is in a “nascent” recovery. Conditions are likely to warrant “exceptionally low levels” of the benchmark interest rate for an extended but unspecified period, he said, delivering his semiannual report on monetary policy. Sales of previously owned U.S. homes unexpectedly tumbled in January for a second month. Purchases fell 7.2 percent, the second-largest drop ever, the National Association of Realtors said yesterday in Washington. The data followed a Commerce Department report on Feb. 24 that showed new-home sales dropped to a record low last month, an annual pace of 309,000. Confidence among U.S. consumers fell in February to the lowest level in 10 months, the Conference Board’s confidence index showed on Feb. 23. Consumer Spending A Commerce Department report yesterday showed consumer spending rose at a 1.7 percent pace from October through December, compared with a 2 percent rate forecast by economists in a Bloomberg News survey. Revised gross domestic product for the quarter increased at a 5.9 percent annual pace, the fastest in six years. The median forecast was for a 5.7 percent advance. “The economic data has been mixed to outright negative,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 18 primary dealers that trade directly with the Federal Reserve. “People expected to see brighter horizons, but actually the numbers are coming in weaker.” Traders cut bets the Fed will raise the cost of borrowing. Rate futures on the Chicago Board of Trade yesterday showed a 48 percent chance U.S. policy makers would raise the target lending rate by November. The odds were 61 percent a week earlier. The difference in yields between 10-year inflation-linked Treasuries and comparable conventional U.S. notes, known as the breakeven rate, touched 2.14 percentage points yesterday, the lowest since Dec. 11. The rate, which reached a 2010 high of 2.49 percent on Jan. 11, is a measure of traders’ expectations for inflation. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

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