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Treasuries Fall a Fourth Day as Economists See Job Gains

Treasuries dropped for a fourth day, making them the world’s worst-performing bonds, as economists said a report will show the U.S. unemployment rate held at the lowest level since 2008.

Ten-year Treasuries headed for their steepest weekly slide since March after a private report yesterday showed companies added more workers than expected in December and the Federal Reserve said it will probably end monthly debt purchases this year. Government securities maturing in 10 years and longer handed investors a 4.72 percent loss in the past month, the biggest decline of 144 debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies.

Treasuries are falling “as people revise up their expectations for payrolls and combine that with the Fed minutes,” said Craig Collins, managing director of rates trading at Bank of Montreal (BMO) in London. “We’ve broken through some key support levels so technically the market looks like higher yields ahead.”

Benchmark 10-year yields rose five basis points, or 0.05 percentage point, to 1.96 percent at noon London time, based on Bloomberg Bond Trader prices. They reached 1.97 percent, the highest level since April 26. The 1.625 percent note maturing in November 2022 fell 13/32, or $4.06 per $1,000 face amount, to 97 1/32. The rate has climbed 26 basis points since Dec. 28, the biggest weekly advance since March 16.

U.S. debt slid along with its German and U.K. peers. The 10-year bund yield rose seven basis points to 1.55 percent, while the rate on similar-maturity gilts increased to as much as 2.13 percent, the most since April 30.

Equities Soar

Collins sees Treasuries finding support with yields below the “psychologically important” 2 percent level before today’s jobs data. Support refers to an area on a price graph where analysts expect buy orders to be grouped.

Equities are outperforming bonds. The MSCI All-Country World Index (MXWD) of stocks advanced 4.3 percent in the past month, including reinvested dividends, according to data compiled by Bloomberg.

The U.S. 10-year term premium, a model created by Fed economists that includes expectations for interest rates, growth and inflation, showed Treasuries were the closest to fair value in eight months.

The figure was negative 0.67 percent, the most since May. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

The U.S. jobless rate was 7.7 percent in December, the same as November, based on a Bloomberg News survey of 74 economists before the Labor Department report at 8:30 a.m. New York time. The last time the rate was so low was December 2008. It has averaged 6 percent over the past two decades.

Jobs Creation

The economy gained 153,000 jobs, versus 146,000 in November, according to a separate survey of analysts.

At 10 a.m., the Institute for Supply Management will say its services index, which covers almost 90 percent of the economy, eased to 54 in December from the prior month’s 54.7 reading, according to the Bloomberg surveys. A gauge above 50 signals expansion. Data from ADP Research Institute yesterday showed companies added more workers than economists expected.

“I’m bearish on Treasuries,” said Hajime Nagata, who helps oversee the equivalent of $117.7 billion as an investor in Tokyo at Diam Co., a unit of Dai-ichi Life Insurance Co. “The economy looks like it’s getting better. Stocks will probably outperform bonds.”

Bond Purchases

Treasuries fell yesterday after Fed policy makers said they may end their $85 billion monthly bond purchases in 2013.

Minutes from the Federal Open Market Committee’s Dec. 11-12 meeting show a divide among participants on how long the purchases should last. Those who provided estimates were “approximately evenly divided” between participants who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date.

“The so-called risk-free assets such as Treasuries or bunds or gilts don’t look as appealing at the moment,” said Georg Grodzki, London-based head of credit research at Legal & General Investment Management, which has about $290 billion of bond funds. “They had a pretty bad start to the year and now with the FOMC minutes out it can only get worse and if today’s nonfarm payroll number surprises on the upside, it could be another bad day for Treasuries.”

Grodzki spoke in an interview on Bloomberg Television’s “On the Move” with Francine Lacqua.

Bonds slid earlier in the week as U.S. lawmakers approved a budget averting income-tax increases for more than 99 percent of households, breaking an impasse about how to avoid the so-called fiscal cliff.

Treasuries are tumbling as the government prepares to start this year’s auctions.

The U.S. plans to sell $32 billion of three-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds over three days starting Jan. 8, the Treasury Department announced. The amounts are unchanged from the last time the government issued this combination of securities in December.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.

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