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Treasury 10-Year Yield Touches 3-Week Low on Europe Debt Concern

Treasury 10-year notes gained, with yields touching a three-week low, as Spain’s economy minister said the country’s recovery depends on clearing up doubts about the euro.

Treasury yields rose earlier as a measure of U.S. service industries expanded faster than forecast and a private report showed employers added more jobs than projected, signs the economic recovery may be strengthening. The U.S. jobless rate probably rose in September as employers kept a lid on hiring, a Labor Department is forecast to show on Oct. 5.

“There’s an underpinning to Treasuries from the European sovereign-debt crisis,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “That’s an ongoing issue.”

The yield on 10-year notes fell one basis point, or 0.01 percentage point, to 1.61 percent at 5 p.m. in New York, based on Bloomberg Bond Trader data. It earlier reached 1.60 percent, the lowest since Sept. 7. The 1.625 percent security due August 2022 rose 1/32, or 31 cents per $1,000 face value, to 100 3/32.

The 30-year yield was little changed at 2.82 percent.

Spain’s Economy Minister Luis de Guindos said today at a press conference in Madrid that the country won’t recover unless “all doubts about the future of the euro are answered.”

The 30-year Treasury bond gained yesterday after Spanish Prime Minister Mariano Rajoy said he has no plans to request financial assistance in the near term.

Economic Reports

The Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, rose to 55.1 in September from the prior month’s 53.7, the Tempe, Arizona-based group said today. The median forecast of 77 economists surveyed by Bloomberg projected 53.4. Readings

The ADP Employer Services report showed that employers added 162,000 jobs last month, compared with a forecast of 140,000 jobs in a Bloomberg News survey of economists and a revised 189,000 the prior month.

The Labor Department is forecast to show the U.S. last month added 115,000 jobs, compared with 96,000 in August, according to a Bloomberg News survey. The unemployment rate is expected to rise to 8.2 percent from 8.1 percent, a separate survey of economists said.

“There’s still a great deal of economic uncertainty facing the market -- the labor component and the labor market read is going to be very important,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, said in a phone interview. “The market is unwilling to really take a strong stance in either direction at this point so close to the numbers. We’re kind of staying in this range.”

Seeking Mortgages

Mortgage applications in the U.S. climbed last week to the highest level in more than three years as borrowing costs dropped to a record low.

The Mortgage Bankers Association’s index jumped 16.6 percent in the period ended Sept. 28 from the prior week to reach the highest point since April 2009, the Washington-based group said today. Purchase applications rose 3.9 percent and refinancing surged 19.6 percent.

Volatility in the Treasury market as measured by the Merrill Lynch MOVE index was 60.4 yesterday, compared with an average of 60.33 since Sept. 14, the day after the Federal Reserve said it would buy $40 billion a month of mortgages until central-bank policy makers see an environment described by Chairman Ben S. Bernanke as an “ongoing, sustained improvement in the labor market.” The central bank also said it will probably hold the federal funds rate near zero at least through mid-2015.

‘Economic Uptick’

“The reiteration that the Fed was going to keep rates low even into the face of an economic recovery is not all that bullish for the back-end of the market,” said Scott Graham, head of government-bond trading in Chicago at Bank of Montreal’s BMO Capital Markets unit, one of the 21 primary dealers that trade with the Fed. “You’ve got stronger housing, stronger employment data and then a stronger ISM. There’s a real fear that if there’s any kind of economic uptick that the inflation story will be very negative for the back end of the market.”

The difference between 10-year yields on Treasury Inflation-Protected Securities and conventional U.S. government debt widened to 2.50 percentage points compared with 2.38 percentage points on Sept. 12. The difference, known in the bond market as the break-even rate of inflation, represents bond traders bets for the rate of acceleration in consumer prices during the lives of the securities.

The Fed purchased $4.71 billion of securities maturing from October 2018 to August 2020 today as part of its program to swap shorter-term Treasuries in its holdings with those due in six to 30 years, according to Fed Bank of New York’s website.

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