Nov. 5 (Bloomberg) -- Treasuries were little changed as reports showed U.S. companies shed more jobs than expected and growth in the service sector slowed.

Longer-maturity debt strengthened, pushing the difference in yields between two- and 10-year notes to as little as 2.21 percentage points, the least since Oct. 27. The Treasury Department announced it will sell $55 billion in debt next week, about what traders expected. U.S. stocks fell.

``The curve is flattening out a bit,'' said Sean Murphy, a Treasury trader and strategist in New York at RBC Capital Markets, the investment-banking arm of Canada's largest bank. ``Twos are underperforming.''

Ten-year note yields declined 1 basis point, or 0.01 percentage point, to 3.72 percent at 12:44 p.m. in New York, according to BGCantor Market Data. The 4 percent security maturing in August 2018 rose 1/32, or 31 cents per $1,000 face amount, to 102 10/32. The two-year note was little changed at 1.37 percent.

The yield on the 30-year bond dropped 1 basis point to 4.18 percent.

The consumer price index will fall to a 2.10 percent annual rate by the end of 2009, according to the median forecast of 73 economists and strategists surveyed by Bloomberg News. The index was unchanged in September at a 4.9 percent annual rate, according to the Labor Department.

ISM, ADP Reports

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, decreased to 44.4, the lowest level since records began in 1997, the Tempe, Arizona-based group said today. A reading of 50 is the dividing line between growth and contraction. An ADP Employer Services report showed the U.S. economy shed 157,000 jobs in October, the most in almost six years.

``The effect of the morning's data was modest,'' said Carl Lantz, an interest-rate strategist in new York at Credit Suisse Securities USA LLC, one of the 17 primary dealers that trade with the Federal Reserve. ``The market continues to discount October data to some extend. We know it was a weak month. A lot of that is baked in.''

The Standard & Poor's 500 Index retreated 3.2 percent amid concern the worsening economy will crimp profits even as President-elect Barack Obama takes steps to stimulate growth. The Democratic party picked up seats in Congress in the elections, making it potentially easier to push through Obama's plans to revive the shrinking U.S. economy.

Government bailouts totaling about $3 trillion, interest- rate cuts around the world and unprecedented cash injections by central banks drove the London interbank offered rate lower.

Libor Falls

The cost of borrowing in dollars for three months fell 20 basis points to 2.51 percent, the lowest level since December 2004, the British Bankers' Association said today.

``With Libor coming down, the market is shifting focus from the financial-market crisis to economic fundamentals,'' said Alex Li, an interest-rate strategist in New York at Credit Suisse Securities USA LLC.

The U.S. Treasury said it plans to sell $55 billion in government debt this quarter and bring back auctions of three- year notes as a slowing economy balloons the budget deficit to a record level.

The department's so-called quarterly refunding of longer- dated securities is the biggest in four years. The Treasury plans to auction $25 billion in three-year notes on Nov. 10, $20 billion in 10-year notes Nov. 12 and $10 billion in 30-year bonds Nov. 13, the department said.

Three-year notes, which had been suspended since May 2007, will now be issued on a monthly basis, it said.

`More Frequent'

``Three-year notes will come monthly and not quarterly, so I think that is more frequent than people expected,'' said Stephen Van Order, a strategist in Bethesda, Maryland, at Calvert Asset Management, which oversees $10 billion in bonds.

Longer-maturity Treasuries rallied yesterday as investors bought the securities as a hedge against the early prepayment of home mortgages that underlie mortgage-backed bonds. The spread between Fannie Mae current coupon, 30-year mortgage-bonds and 10-year Treasury notes fell 13 basis points, the six straight day of declines, to 1.75 percentage points.

Futures on the Chicago Board of Trade show a 100 percent probability the Fed will reduce its target rate for overnight bank loans by 50 basis points to 0.5 percent next month. The odds rose from 55 percent the day before.

To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net.

Last Updated: November 5, 2008 12:55 EST