By Daniel Kruger and Susanne Walker Nov. 25 (Bloomberg) -- Treasuries declined before the U.S. sells a record $32 billion of seven-year notes, the last of three auctions this week totaling $118 billion. Government securities fell as initial jobless claims dropped last week to the lowest level since September 2008. Sales of new homes in the U.S. rebounded more than anticipated in October. The Federal Reserve said in minutes released yesterday of its November meeting that interest rates would remain near zero “for an extended period” as long as inflation expectations are stable and unemployment fails to decline. “Treasuries are chopping around,” said James Combias, New York-based head of Treasury trading at Mizuho Securities USA Inc., one of 18 primary dealers required to bid at Treasury auctions. “The seven-year is a large auction. People have to make some room or get a concession to buy the seven-year.” The benchmark 10-year note yield rose three basis points, or 0.03 percentage point, to 3.33 percent at 10:04 a.m. in New York, according to BGCantor Market Data. The 3.375 percent security due November 2019 fell 7/32, or $2.19 per $1,000 per face amount, to 100 3/8. The number of Americans filing claims for unemployment benefits fell to 466,000, more than forecast, in the week ended Nov. 21. Continuing claims declined by 190,000 in the week ended Nov. 14 to 5.423 million. They were forecast to drop to 5.57 million. ‘Strong Cautions’ “Claims are getting the attention here, but with the two strong cautions that 1) seasonal factors accounted for a lot of the drop, and 2) this series is particularly volatile at this time of the year,” David Ader, head of government bond strategy at Stamford, Connecticut-based CRT Capital Group LLC, wrote in a note to clients. “Still, claims were under 500K and so this is bond bearish.” Spending by U.S. consumers increased 0.7 percent, according to Commerce Department figures, above the 0.5 percent median forecast in a Bloomberg News survey. The report showed prices were stabilizing. The inflation gauge tied to spending patterns rose 0.2 percent from October 2008, the first year-over-year gain since April. The Fed’s preferred price measure, which excludes food and fuel, climbed 0.2 percent in October from the previous month and was up 1.4 percent from a year earlier. Seven-Year Sale Purchases of new homes in the U.S. rose 6.2 percent in October, more than anticipated, as buyers rushed to take advantage of a government tax credit before it expired. The seven-year security to be sold today yielded 2.85 percent in pre-auction trading. The previous sale of seven-year notes in October drew a high yield of 3.14 percent and attracted bids for 2.65 times the amount on offer, compared with a so- called bid-to-cover ratio of 2.79 times at the September offering. Yesterday’s $42 billion five-year note auction drew a yield of 2.175 percent, compared with a Bloomberg survey forecast of 2.208 percent. A $44 billion sale of two-year securities on Nov. 23 drew a yield of 0.802 percent, the lowest ever. Treasury holders have lost 1.7 percent so far this year, as measured by indexes compiled by Merrill Lynch & Co. They are heading for the first loss since 1999, as President Barack Obama borrows record amounts to fund spending programs and service deficits. U.S. marketable debt totaled $6.95 trillion in October, after climbing to a record $7.01 trillion in September. Minutes released yesterday of the Fed’s November meeting showed that while policy makers agreed the chances of excessive risk-taking and a dislodging of expectations for low inflation were “relatively low, they would remain alert to these risks.” ‘Quite Elevated’ The central bank raised its forecast for 2010 growth yesterday to a range of 2.5 percent to 3.5 percent, from 2.1 percent to 3.3 percent. “Most members projected that over the next couple of years, the unemployment rate would remain quite elevated and the level of inflation would remain below rates consistent over the longer run with the Federal Reserve’s objectives,” the minutes said. Policy makers indicated the benchmark lending rate would remain near zero “for an extended period” as long as inflation expectations are stable and unemployment fails to decline. The earliest policy makers will increase borrowing costs is in the third quarter of next year, according to a Bloomberg survey. To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net.

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