Treasury 10-Year Yield Reaches 4-Month High Before Jobs Report

Treasuries fell, pushing the 10-year note yield above 3 percent for the first time since July, before of a report tomorrow forecast to show more gains in U.S. employment, fueling demand for assets linked to growth.

U.S. securities declined after an unexpected increase in home sales added to evidence of a faster economic expansion. U.S. payrolls may have increased in November for a second month, according to a Bloomberg News survey. The Federal Reserve bought more Treasuries and the European Central Bank refrained from providing any additional steps to address the region’s financial crisis.

“The market is waiting for Friday’s employment report to determine where we are, and seeing how far we’ve come on the labor front,” said Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The ongoing euro crisis and the Fed purchases will keep a lid on how far Treasuries can fall in the near term.”

Yields on benchmark 10-year notes rose three basis points, or 0.03 percentage point, to 2.99 percent at 5:04 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 fell 7/32, or $2.19 per $1,000 face amount, to 96 27/32.

High Touch

The 10-year note yield touched 3.0257 percent, the highest since July 29. The yield increased 17 basis points yesterday, the most since Nov. 15, according to data compiled by Bloomberg.

The Fed bought $8.3 billion of Treasuries maturing from February 2018 to August 2020 as part of its plan to pump $600 billion into the economy through June, according to the New York Fed’s website. The central bank has purchased $27.5 billion of U.S. securities this week and plans to buy more tomorrow.

Federal Reserve Bank of St. Louis President James Bullard said a recent increase in market interest rates doesn’t mean the central bank’s expansion of monetary stimulus is failing.

While the program “puts downward pressure” on rates, successful policy would generate faster growth and higher real interest rates while also increasing inflation expectations, Bullard said in a presentation in Washington.

Economy Watch

The index of pending home resales gained 10 percent after dropping 1.8 percent in September, the National Association of Realtors said today in Washington. The median forecast in a Bloomberg News survey called for a 1 percent decrease. The group’s data go back to 2001.

Jobless claims increased by 26,000 to 436,000 in the week ended Nov. 27, Labor Department figures showed in Washington. Employment in the U.S. rose in November for the second month in a row, with payrolls rising 150,000 a Labor Department report will show Dec. 3, according to a Bloomberg News survey of 87 economists.

“The data has been constructive and is starting to signal that we’ve turned a corner in the recovery, but European issues are still giving the market some support,” Said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies Group Inc., one of the 18 primary dealers that trade with the Fed. “The market is responding to a mixed bag of data and headline news out of Europe.”

ECB Stance

ECB policy makers meeting in Frankfurt kept the benchmark interest rate at a record low of 1 percent. ECB President Jean-Claude Trichet said the ECB will delay its withdrawal of emergency liquidity measures to combat “acute” market tensions.

Ireland on Nov. 28 became the second country to tap European assistance, following Greece, prompting a flight to quality amid speculation that the country’s funding crisis may spread to Portugal and Spain. The Irish rescue package is worth 85 billion euros ($112 billion).

The 10-year Treasury note is a “buying opportunity” in the short term, said Michael Cloherty, head of U.S. rates strategy for fixed income and currencies at the primary dealer Royal Bank of Canada in New York. The European situation “should get some flight-to-quality bid coming in.”

Next week’s government debt sales will include $32 billion of three-year notes on Dec. 7, $21 billion of 10-year securities the following day and $13 billion of 30-year bonds on Dec. 9, matching a forecast by Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance. The $66 billion total would compare with $72 billion at the previous sale of the same maturities in November.

Ten-year rates will rise to 3.23 percent by the end of 2011, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings.

The difference in yield, or the spread, between 10- and 30-year Treasury notes narrowed to near a one-month low, touching 127 basis points, down from a record of 160 basis points on Nov. 10.