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Treasury Yields Near Highest Since July Before Payroll Report

Ten-year Treasury yields were near the highest since July before a government report that is forecast to show U.S. employers added jobs for a second month.

Ten-year notes headed for a weekly loss as global stocks gained and economists said separate figures today will show service industries, which account for almost 90 percent of the economy, grew at the fastest pace since May. The Federal Reserve is scheduled to buy $6 billion to $8 billon of Treasuries due from 2013 to 2014 today as part of its plan to spur the economy.

“Market focus is very much on the non-farm payrolls and ISM data,” said Michael Leister, a fixed-income analyst at WestLB AG in Dusseldorf, Germany. “Positive data have been the trigger for the selloff in rates in the U.S. Today’s numbers may add to evidence that growth is picking up, and that should support risk appetite.”

Benchmark 10-year yields were little changed at 3 percent as of 7:12 a.m. in New York, according to BGCantor Market Data. The 2.625 percent security maturing in November 2020 traded at a price of 96 25/32. Yields climbed to 3.03 percent yesterday, the highest level since July 29.

Yields will end June at 2.78 percent, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.

The yield difference between two-year and 10-year notes, the so-called yield curve, rose to the highest level in more than five months. The curve steepened by one basis point to 246 basis points today. That’s the most since June 22, according to Bloomberg generic data.

Bernanke’s Comment

U.S. employers added 150,000 workers last month, after hiring 151,000 in October, according to the median forecast of economists surveyed by Bloomberg News. The advances haven’t been large enough to bring down unemployment, which held at 9.6 percent, according to a separate Bloomberg survey.

Data from the Institute for Supply Management today will show its non-manufacturing index rose to 54.8 last month, according to another Bloomberg survey. That’s up from 54.3 in October and the highest level since May. A reading of more than 50 signals growth.

Fed Chairman Ben S. Bernanke said Nov. 30 that the economy is “not growing fast enough to materially reduce the unemployment rate” and the rate is “about the same as it was when the recession officially ended.”

Declines in Treasuries may be limited after Fed Bank of Cleveland President Sandra Pianalto said core inflation is likely “to remain quite subdued through 2013.” She spoke yesterday in Oberlin, Ohio. The measure of inflation increased 0.6 percent in October from the year before, the least on record, Labor Department data show.

Housing Recovery

The figure will slow to 0.2 percent in the second half of 2011, according to BNP Paribas, one of the 18 primary dealers that are required to bid at the government’s debt sales.

Treasuries still headed for a weekly loss, with 10-year yields rising about 13 basis points, after a private report yesterday showed a pickup in the housing market.

“Bonds will be a bit weaker,” said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $66.8 billion in assets. “We have been seeing better-than-expected economic figures.” Ten-year yields will rise to 3.25 percent by June 30, he said.

Benchmark yields increased four basis points, or 0.04 percentage point, after the prior employment report on Nov. 5, when payrolls exceeded all estimates in a Bloomberg survey.

Treasuries went on to hand investors a 0.7 percent loss last month, the steepest decline since March, according to Bank of America Merrill Lynch data.

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