Nov. 6 (Bloomberg) -- Treasuries fell as traders prepared for the government's auctions of $55 billion of debt next week.

Longer-term U.S. securities also declined as traders hedged a rise in mortgage rates with sales of Treasuries. Two-year notes were little changed after a report showed total jobless rolls climbed to the highest levels in 25 years. A government report tomorrow is forecast by economists to show payrolls shrank by 200,000 workers.

``The market is struggling to find the right balance between positioning for Friday's employment report and setting up for next week's Treasury refunding in a holiday-shortened week,'' said Richard Bryant, a 30-year-bond trader at Citigroup Global Markets Inc., one of the 17 primary dealers that trade with the Federal Reserve.

The yield on the benchmark 10-year note climbed 8 basis points, or 0.08 percentage point, to 3.78 percent at 10:03 a.m. in New York, according to BGCantor Market Data. The 4 percent security due in August 2018 dropped 21/32, or $6.56 per $1,000 face amount, to 101 26/32.

The two-year note's yield was 1.34 percent.

The Securities Industry and Financial Markets Association recommended a 2 p.m. close to trading on Nov. 10 and a full close on Nov. 11 for the U.S. Veterans Day holiday.

The yield on Washington-based Fannie Mae's current-coupon, 30-year fixed-rate mortgage securities rose 11 basis points to 5.61 percent today, according to data compiled by Bloomberg. That's the biggest gain since Oct. 28.

As mortgage rates rise, investors may enter into swap contracts to make fixed-rate payments and receive floating-rate payments to reduce the duration, or average maturity, of their portfolios. Dealers who accept the fixed-rate payments in turn often sell Treasuries to hedge their risks, fueling the trend of rising rates.

`Pressure on the Markets'

``Basically what happens when there's paying in swaps, it's putting pressure on the markets,'' said Andrew Brenner, co-head of structured products in New York at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``You see the 10-year off.''

The Bank of England cut its key rate by 1.5 percentage points today, more than anticipated, to 3 percent, the lowest level since 1955. The European Central Bank and Swiss National Bank also lowered rates.

To contact the reporter on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net.

Last Updated: November 6, 2008 10:06 EST