Treasuries headed for a second monthly loss as stronger-than-forecast economic data and confidence the Federal Reserve’s $600 billion Treasury purchase program will fuel more growth, reduced demand for the debt. The yield on the two-year note rose for the fourth straight week, the longest period of increases since April 2, as a report on Nov. 24 showed initial jobless claims dropped to the lowest level since July 2008, reinforcing sentiment the employment market is healing. A report on Dec. 3 may show nonfarm payrolls rose by 145,000, according to a Bloomberg survey. “It’s more of a function of the negative sentiment in the Treasury market, given the broader macroeconomic strength,” Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut, said Nov. 24. “The market has been under pressure.” Ten-year note yields climbed 35 basis points on the month, or 0.35 percentage point, to 2.87 percent yesterday in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 was at 97 29/32. For the week, 10-year yields were little changed. Two-year note yields rose one basis point to 0.51 percent. Thirty-year bond yields fell three basis points to 4.21 percent. Total Return U.S. government securities have handed investors a loss of 1.3 percent in November, following a 0.2 percent decline in October, according to Bank of America Merrill Lynch indexes. Treasuries haven’t handed in negative returns in two consecutive months since they declined June of 2009, when signs of economic improvement were eating into demand for debt. Ten-year Treasury yields will drop to 2.63 percent by year- end, according to a Bloomberg survey of 62 financial firms with the most recent forecasts given the heaviest weightings. Nonfarm payrolls rose for the second rise in as many months, according to a Bloomberg survey of 56 economists before a report next week. The jobless rate is expected to remain steady at 9.6 percent. Jobless claims declined by 34,000 to 407,000 in the week ended Nov. 20, Labor Department figures showed Nov. 24 in Washington. The median projection of economists surveyed by Bloomberg News called for a drop to 435,000. Jobs Connection “The jobless claims contributed to the weakness in the market,” James Combias, New York-based head of Treasury trading at Mizuho Financial Group Inc., one of 18 primary dealers that trade with the Fed, said Nov. 24. Consumer spending rose in October for a fifth month as a rebound in incomes lifted the biggest part of the U.S. economy at the start of the final quarter of 2010. Household purchases advanced 0.4 percent after a 0.3 percent gain in September that was larger than previously estimated, Commerce Department figures showed that day. Incomes climbed 0.5 percent. Treasuries pared weekly losses amid mounting tensions between North and South Korea and renewed concerns about a European sovereign debt crisis spreading from Ireland to Portugal and Spain. Standard & Poor’s Ratings Services yesterday downgraded Anglo Irish Bank Corp. Ltd., to below investment grade, reinforcing concern about financial stress within euro-zone countries. The agency dropped the counterparty credit ratings on the bank six levels to B, or below investment grade, from BBB. The ratings remain on CreditWatch with negative implications, S&P said. ‘Uncertainty in Europe’ “There’s still a lot of uncertainty in Europe,” said John Spinello, chief technical strategist in New York at primary dealer Jefferies Group Inc. “Without the buybacks from the Fed and the sovereign debt crisis in Europe, yields may have gone up beyond 3 percent.” Ireland this week became the second country to seek to tap a European-Union led 750 billion-euro ($993 billion) bailout account. The yield on Irish 10-year debt climbed almost 1 percentage point this week to 9.32 percent yesterday, from 8.35 percent on Nov. 19. Euro-area finance ministers plan to complete an international aid package agreement for Ireland on Nov. 28, a European Union official said on condition of anonymity. “Bad debts and government management practices have been well known for several years,” Jim Vogel, head of agency debt research at FTN Financial in Memphis, Tennessee, wrote in a note to clients. “It was just assumed a return of leverage and the resulting nominal economic growth would allow everyone to grow their way out of the difficulty.” He didn’t respond to phone calls seeking further comment. Fed Shops The Fed has acquired $48 billion in Treasuries since it initiated the second round of purchases on Nov. 12. The central bank will purchase securities twice on Nov. 29, once each day for the remainder of next week and on the first four days of the following week. In its first round of asset purchases, ended in March, the Fed bought $1.75 trillion in securities, including $300 billion in Treasuries, in an effort to spur economic growth strong enough to lower unemployment from near a 26-year high. Fed Chairman Ben S. Bernanke will hold a “Conversation on the Economy” on Nov. 30 at Ohio State University in Columbus, Ohio. The U.S. sold $99 billion of notes this week in auctions held during the three days ended Nov. 24. The final two sales drew higher-than-forecast yields and reduced bidding compared with previous sales. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Source