By Wes Goodman Dec. 4 (Bloomberg) -- Treasury benchmark notes headed for their steepest weekly loss in almost four months before a government report that economists said will show U.S. job losses slowed in November. Investors in U.S. debt are bearish and willing to wait to buy, even if Treasuries gain after the payroll figures, according to a Royal Bank of Scotland Group Plc survey. Notes, little changed today, fell this week as investors sought higher yields in corporate bonds. “Treasury yields will go up,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC Co. in Tokyo, part of Japan’s second-largest brokerage. “The pace of job declines will slow. U.S. economic growth will continue.” Ten-year notes yielded 3.38 percent as of 6:18 a.m. in London, according to data compiled by Bloomberg. The 3.375 percent security maturing in November 2019 traded at 99 31/32. The yield climbed 17 basis points this week, the most since the period ended Aug. 7. It will rise to 3.81 percent by the middle of next year, according to a Bloomberg news survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. The yield on an index of corporate bonds compiled by Bank of America’s Merrill Lynch unit was 3.22 percentage points more than Treasuries yesterday, the smallest difference this year. Payrolls Report Payrolls declined by 125,000 workers, the smallest number since March 2008, according to the median estimate of 82 economists surveyed by Bloomberg News. The jobless rate held at a 26-year high of 10.2 percent, a separate survey showed. About 56 percent of Treasury investors would do “nothing” if the market rises following the report and 25 percent would do the same if it falls, William O’Donnell and Aaron Kohli, strategists at RBS Securities Inc. in Stamford, Connecticut, wrote in a report. The company is one of 18 primary dealers that trade with the Federal Reserve. Fifty-six percent of those surveyed called for higher yields on five-year notes, now 2.13 percent, the most bearish outlook since July 2007. Note yields fell three basis points to four basis points on the day of the last employment report Nov. 6, as an increase in the unemployment rate reinforced expectations that the Federal Reserve will hold interest rates at a record low. Two-year yields were little changed at 0.73 percent, or 13 basis points above the record low set in December last year. The difference between two- and 10-year rates widened to 2.65 percentage points from 1.45 percentage points at the end of 2008. Shorter Maturities Shorter maturities are more influenced by what the Fed does with borrowing costs, while longer bonds tend to move on the outlook for inflation. Central bank statements on Nov. 4 and Nov. 24 repeated the Fed’s view that it would keep the rate “for an extended period.” It cut its target for overnight bank lending to a range of zero to 0.25 percent in December of last year. St. Louis Federal Reserve Bank President James Bullard said the Fed may need to rethink its usual practice of waiting for unemployment to drop before starting to raise interest rates, in an interview with Dow Jones Newswires yesterday. “If a tepid recovery in labor markets is just the new reality,” then policy makers “shouldn’t be saying, ‘Oh, we are just going to keep interest rates where they are,’” Bullard said, according to the Dow Jones report. Overseas Purchases The Treasury said yesterday that it will auction $40 billion of 3-year notes on Dec. 8, $21 billion of 10-year notes on Dec. 9 and $13 billion of 30-year bonds on Dec. 10. The government raised $81 billion the last time it sold that combination of notes and bonds in November. Japanese Chief Cabinet Secretary Hirofumi Hirano said today his government has no plan to sell its holdings of U.S. Treasuries to fund economic programs. President Barack Obama is depending on investors outside the U.S. to buy Treasuries as he borrows record amounts to try to sustain growth in the economy. Japan bought a net $125.5 billion of U.S. government debt this year through September, exceeding China as the biggest foreign buyer and boosting its holdings to $751.5 billion, or more than 10 percent of the total market, Treasury Department data show. The 20 percent increase is the most since a 25 percent surge in 2004. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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