Treasuries fell, extending their steepest monthly loss this year, as a European financial rescue plan for Ireland cut demand for the relative safety of U.S. securities.
Notes also slid on speculation U.S. government and industry reports this week will show payrolls and manufacturing expanded in November. The Federal Reserve is scheduled to buy Treasuries twice today as part of its plan to pump $600 billion into the economy through June to spur growth.
?The flight to quality has eased, but it?s not over,? said Hiroki Shimazu, a Tokyo-based economist at Nikko Cordial Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc., Japan?s third-largest publicly traded bank by assets.
Ten-year yields rose two basis points to 2.89 percent as of 12:08 p.m. in Tokyo, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 fell 1/8, or $1.25 per $1,000 face amount, to 97 3/4.
The yield dropped four basis points, or 0.04 percentage point, on Nov. 26 because of tensions between South and North Korea. The South?s President Lee Myung Bak said in a nationally broadcast television address today he will make North Korea pay for further provocations.
U.S. 10-year yields will advance to 3.24 percent by the end of 2011, according to a Bloomberg survey of 59 banks and securities companies, with the most recent forecasts given the heaviest weightings.
European governments agreed to arrange an 85 billion euro ($112.3 billion) package of loans for Ireland, fueling speculation that Portugal and Spain will also require funds.
?Focus on Portugal?
?People are now going to focus on Portugal and it?s probably also going to need some help,? said Axel Merk, president and chief investment officer of Merk Investments LLC in Palo Alto, California. ?We?ll maybe see some relief in markets, but governments need to show they?re getting their economies in shape.?
The U.S. added 145,000 workers this month, after a 151,000 gain in October, according to the median forecast of economists surveyed by Bloomberg News before Labor Department data on Dec. 3. A report from factory purchasing managers Dec. 1 will show output expanded for a 16th month, a separate Bloomberg survey showed.
Treasuries have handed investors a 1.1 percent loss in November, Bank of America Merrill Lynch data show, as the U.S. economy showed signs of picking up. The decline would be the biggest since the debt fell 2.6 percent in December 2009.
The average U.S. shopper spent 6.4 percent more over the weekend than last year, the National Retail Federation said yesterday, as the Christmas retail-sales season began.
Retailers lured customers with promotions such as slow- cookers for $7.88 at J.C. Penney Co. and $5 Barbies at Wal-Mart Stores Inc.
Fed Purchases
The Fed is scheduled to buy $1.5 billion to $2.5 billion of Treasuries due from 2021 to 2027 today and $6 billion to $8 billion of government debt maturing from 2013 to 2014, according to its website.
The central bank plans to focus about 86 percent of its purchases on notes due in 2.5 years to 10 years, leaving the so- called long bond as the security that most closely reflects market expectations for inflation. Since the Fed?s Nov. 3 announcement, the 30-year yield rose 0.28 percentage point, suggesting growing investor confidence in the central bank?s efforts to avoid deflation as the economy expands.
?Bellwether Issue?
?The 30-year, with minimal Fed involvement, will become the bellwether issue for the bond market?s outlook on the economy and inflation,? said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG?s Private Wealth Management unit in New York.
Trading in Treasuries due in 11 years and more tripled since July, compared with a 60 percent jump for all maturities, according to Fed data. Volume reached $65.7 billion in the week ended Nov. 10 among the 18 primary dealers that trade with the central bank, the largest amount since at least 2001.
The increase in 30-year yields to a six-month high of 4.42 percent on Nov. 15 shows traders expect Fed Chairman Ben S. Bernanke will head off deflation, which can stall recoveries by curtailing spending and investment, said Rohit Garg, an interest-rate strategist in New York at BNP Paribas SA.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
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