By Gavin Finch and Ron Harui Dec. 5 (Bloomberg) -- Treasuries were little changed, headed for a fifth week of gains, before a report forecast to show U.S. employers cut jobs in November at the fastest pace in a quarter century as the recession deepened. Gains this week drove yields on two-, five-, 10- and 30- year securities to record lows as traders raised bets the Federal Reserve will cut the target interest rate 75 basis points to 0.25 percent on Dec. 16. Bonds also rallied after Fed Chairman Ben S. Bernanke said Dec. 1 the central bank may buy Treasuries to target long-term rates to revive the economy. “Investor demand for government bonds remains in place so the rally will continue,” said Axel Blase, a Frankfurt-based fund manager at Invesco Asset Management Ltd., which oversees about $160 billion in fixed-income assets. “Right now investors are looking for liquidity and safety, and that’s why Treasuries are rallying, even though they don’t really offer any value.” The yield on the two-year note was 0.82 percent as of 7 a.m. in New York, according to BGCantor Market Data. The 1.25 percent security maturing in November 2010 was at 110 27/32. The yield tumbled 17 basis points in the week, falling to 0.80 percent yesterday, an all-time low. The 10-year yield was 2.56 percent today, after dropping to a record 2.53 percent yesterday. The security is also set for a fifth weekly gain, with the yield declining 37 basis points this past week. Non-farm payrolls in the U.S. shrank by 333,000 in November, the 11th month that companies have cut jobs, according to the median estimate of 73 economists in a Bloomberg News survey. The Labor Department will issue the report at 8:30 a.m. in Washington. ‘Downside’ Risks “The risks for the data are to the downside,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The U.S. is in recession, and my expectation is that it’ll be in recession for the first half of next year. Go long Treasuries.” The 10-year bond yield may fall to 2.45 percent and the 30- year yield may drop to 2.90 percent by year-end, Carr said. Futures on the Chicago Board of Trade show 68 percent odds that policy makers will lower the 1 percent target rate for overnight lending between banks by 75 basis points on Dec. 16, up from 32 percent a week ago. The rest of the bets are for a 50-basis-points cut. Central banks in the euro region, the U.K., Sweden, Australia, Indonesia, New Zealand and Thailand cut interest rates this week as policy makers stepped up their response to the credit crisis. The Bank of Thailand, European Central Bank and Reserve Bank of New Zealand all lowered borrowing costs by record amounts. U.S. Unemployment Treasuries rose for a seventh day yesterday after a Labor Department report showed the number of Americans on unemployment benefit rolls rose to 4.09 million in the week ended Nov. 22, also the most since 1982. The difference in yield between two- and 10-year notes narrowed to 1.73 percentage points today, the least since September, as traders bet longer-maturity debt will outperform. Investors fleeing to the safety of debt have driven returns on U.S. securities to 12.3 percent this year while the S&P 500 stock index lost 42 percent. Prudential Financial Inc., the second-biggest U.S. life insurer, said yesterday it plans to sell its stake in Wachovia Securities and seek aid from the U.S. government as it braces for a fourth-quarter loss, adding to signs of a prolonged credit crisis. The Fed said yesterday it plans to buy Fannie Mae, Freddie Mac and Federal Home Loan Bank debt maturing over the next two years in its first purchases under a new program aimed at reducing mortgage costs. Buying Bills “The Fed is going to be buying Treasuries in the long end, bringing down rates along the entire curve,” said Marc Fovinci, who helps invest $2.8 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. “We have a credit crunch and nobody knows where the losses are buried, how big they are and who might still go under. We’re going to have demand for Treasuries.” Demand for the safest, shortest maturities have pushed three-month bill rates down to 0.01 percent this past week. Thirty-year yields rose 2 basis points to 3.06 percent, paring a weekly decline to 38 basis points. Money-market rates show banks are reluctant to lend to each other. The difference between what lenders and the Treasury pay to borrow money for three months, the so-called TED spread, was little changed 218 basis points today. The spread reached 464 basis points on Oct. 10, the most since Bloomberg began tracking the figure in 1984. To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

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