By Lukanyo Mnyanda and Wes Goodman March 2 (Bloomberg) -- Treasury 10-year notes fell as stocks rose after the European Union said it expects Greece to announce new deficit measures. The drop pushed the yield up from within 2 basis points of a three-week low as the MSCI World Index advanced for a third day. The central bank should back away from a pledge to keep interest rates low for an “extended period,” Philadelphia Federal Reserve Bank President Charles Plosser said in an interview with the Wall Street Journal. “There’s been better risk appetite generally, equity markets have managed to bounce and bonds haven’t done an awful lot,” said Padhraic Garvey, head of investment-grade debt strategy at ING Groep NV in Amsterdam. The 10-year note yield increased 2 basis points, or 0.02 percentage point, to 3.63 percent at 7:29 a.m. in New York, according to BGCantor Market Data. The yield dropped to 3.58 percent on Feb. 26, the lowest level since Feb. 9. The 3.625 percent security maturing in February 2020 fell 1/8, or $1.25 per $1,000 face amount, to 99 31/32. The two-year note yield rose 1 basis point to 0.82 percent. The premium investors demand to hold 10-year Greek bonds instead of Treasuries of a similar maturity declined 16 basis points to 250 basis points, the narrowest spread since Feb. 12. Talks between the EU and officials in Athens yesterday didn’t include potential bailout moves for Greece, EU spokesman Amadeu Altafaj told reporters in Brussels today. Greece is struggling to cut the region’s largest budget deficit. Bond Bears Bond bears say Treasury yields will rise later in 2010 as the economic recovery is sustained and investors bet on interest-rate increases. The 10-year yield will advance to 4.12 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. “Yields will rise on the back of the economic recovery starting to show through more solidly,” said Andy Cossor, Hong Kong-based chief market strategist for Asia at Frankfurt-based DZ Bank, Germany’s fifth-largest lender. Interest-rate futures on the CME Group exchange showed a 46 percent chance U.S. policy makers will raise the benchmark target rate for overnight loans by at least a quarter-percentage point by November from the record low zero and 0.25 percent. The Fed said Feb. 18 it would increase the discount rate charged on direct loans to banks to 0.75 percent. ‘Beginning to Solidify’ The economy is “beginning to solidify,” Plosser said in the interview with the Journal. “I’m not really fond of this notion that ‘extended period’ means six months,” Plosser said. “That’s tying our hands in a way that seems to be inappropriate and unnecessary.” Plosser made similar remarks at a speech in Philadelphia last month. Fed presidents rotate in voting on monetary policy, with Plosser voting next year. Futures on Standard & Poor’s 500 Index expiring in March rose 0.5 percent. The Stoxx Europe 600 Index gained 0.5 percent. Investors should focus on governments with lower credit or inflation risks, including Germany and Canada, while avoiding Greece and the U.K., according to Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co. Government bailouts suggest a global “unicredit” type of bond market where rates on sovereign debt will resemble the yields of corporations and industries they guarantee, he wrote in a monthly investment outlook posted on Pimco’s Web site yesterday. “Sovereign yields will become more credit-like,” he wrote. “When sovereign issues become more credit-like as evidenced in Greece, Spain, Portugal and a host of others, they move closer in yield to the corporate and agency debt that supposedly rank lower in the hierarchy.” To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

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