Treasuries fell for a third day as the government said it will sell $72 billion of notes and bonds next week and a private report indicated the economy is poised to add jobs for a second straight month. Ten-year note yields reached the highest level in almost seven weeks after ADP Employer Services said jobs increased last month more than forecast. The Labor Department will issue its employment data on Feb. 4. Bonds gained in Greece, Ireland and Italy as European leaders prepared a pledge to defend the euro. “People are thinking that Friday’s payroll report may be stronger than expected,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “People are protecting themselves and moving to the lower end of the trading range. When the data improves or weakens, the payrolls will follow.” Benchmark 10-year note yields increased four basis points, or 0.04 percentage point, to 3.48 percent at 5:03 p.m. in New York, according to BGCantor Market Data. They touched 3.50 percent, the highest level since Dec. 16’s 3.56 percent, which was the most since May. The price of the 2.625 percent security due in November 2020 dropped 10/32, or $3.13 per $1,000 face amount, to 92 30/32. Thirty-year bond yields rose as much as four basis points to 4.66 percent, the highest since April 27, before trading little changed at 4.62 percent. Two-year yields climbed as much as seven basis points to 0.67 percent, the highest since Jan. 7. Treasury Auctions The U.S. will auction $32 billion of 3-year notes, $24 billion of 10-year debt and $16 billion of 30-year bonds in daily offerings that begin Feb. 8. The totals, which matched the forecast in a Bloomberg News survey of 12 of the Federal Reserve’s primary dealers, are the same as at the last refunding in November. The New York Fed named two firms primary dealers today, the first additions since July 2009 to the network of broker-dealers that act as counterparties to central-bank transactions. MF Global Inc. and SG Americas Securities LLC were added to the group, bringing the total number to 20, according to a statement released by the New York Fed. The euro touched the highest since November versus the dollar before Germany ruled out allowing a bailout facility to fund bond buybacks from debt-strapped governments. Bond-risk premiums for Ireland, Greece and Italy narrowed for a third day as investors bet Europe would succeed in boosting efforts to battle its year-old sovereign-debt crisis. Leaders, who meet Feb. 4, are seeking to keep markets at bay until a March deadline to bridge differences. ‘Gotten Better’ “The situation in Europe has gotten better,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, a primary dealer. “As soon as the importance of the risks in Europe fall away a little bit, the natural inclination is for yields to move higher.” The gap between 10-year year yields in Germany and Greece narrowed 0.28 percentage point to 7.55 percentage points, the least since October. Irish 10-year yields shrank 0.24 percentage point to 5.56 percentage points more than similar maturity German debt, and Italian 10-year notes narrowed by 0.15 percentage point to 1.28 percentage points. Data this week indicated the U.S. economic recovery is starting to build momentum, with manufacturing unexpectedly accelerating in January at the fastest pace since May 2004. Treasuries fell yesterday as the Institute for Supply Management’s manufacturing index increased to 60.8 in January, from 58.5 a month earlier, while the prices-paid component rose to 81.5, the most since July 2008, the Tempe, Arizona-based group said yesterday. Readings greater than 50 signal growth. Payrolls Report The Labor Department will report Feb. 4 that U.S. payrolls increased by 140,000 workers last month after a 103,000-job gain in December, according to the median forecast of 81 economists surveyed by Bloomberg News. The data may also show the unemployment rate increased to 9.5 percent from 9.4 percent. “There’s a lack of buying on the back end because of the inflation risk that we have, the commodity risk that we have, the lower-dollar risk that we have,” said John Spinello, chief technical strategist in New York at primary dealer Jefferies Group Inc. “It does not bode well for longer-dated securities.” The government should expand its domestic demand and offer new U.S. securities including “ultra-long” bonds of as much as 100 years, the committee of bond dealers and investors that advises the Treasury recommended. Domestic Banks The Treasury Borrowing Advisory Committee, known as the TBAC, recommend the government develop securities that would target domestic banks, pension funds, insurance companies and individual investors, to reduce its dependence on foreign holders. The “ultra-long” bonds proposed were defined as debt with a maturity of 40-, 50-, or 100 years, according to comments from one member as reported in the minutes of the meeting, which the Treasury published today. “The discussion of long maturities is a little baffling,” said Amitabh Arora, an interest-rate strategist in New York at primary dealer Citigroup Inc. “If they issued more 30-year paper, that would suffice.” As well as expanding the maturity of its debt offered, the Treasury could benefit from adding securities such as floating rate notes, products with embedded options, and interest-rate derivatives, the TBAC said. 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 To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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