By Paul Dobson and Wes Goodman April 8 (Bloomberg) -- Ten-year Treasuries fell, snapping a two-day gain before a government report that economists said will show initial claims for jobless insurance declined to a 19- month low, weakening demand for the safety of government debt. The decline pushed yields up from the lowest in six days after Federal Reserve Bank of Kansas City President Thomas Hoenig said policy makers should consider increasing interest rates “sometime soon.” Ten-year yields reached 4.0095 percent on April 5 after the Labor Department said April 2 that payrolls rose by 162,000 last month, the most in three years. The U.S. plans to sell $13 billion of 30-year bonds today, after bidding rose at a 10-year sale yesterday and pushed up prices. “Sentiment was very positive after the non-farm payrolls data,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “If we see more data pointing in that direction it could be supportive of yields going higher. We could probably touch 4 percent again in the coming weeks.” The yield on the benchmark 10-year note rose 1 basis point to 3.87 percent as of 6:39 a.m. in New York, according to data compiled by Bloomberg. The 3.625 percent security declined 3/32, or 94 cents per $1,000 face amount, to 98. Treasuries handed investors a 0.9 percent loss in March, the first monthly drop in 2010, indexes compiled by Bank of America Corp.’s Merrill Lynch unit show, amid speculation policy makers will start to raise interest rates while President Barack Obama’s administration tries to sustain growth with record borrowing. Treasury Secretary Timothy F. Geithner said in an interview with Bloomberg Television in Mumbai yesterday that some of the recent increase in Treasury yields can be attributed to “fundamental” improvements in the economic outlook. Higher Yields “Yields will go up gradually,” said Kei Katayama, who helps oversee the equivalent of $36.7 billion as leader of the foreign fixed-income group at Daiwa SB Investments Ltd. in Tokyo. “The global economy is on a more solid pace. Almost all countries have started an exit policy,” unwinding stimulus measures implemented during the financial crisis, he said. Initial jobless claims fell to 435,000 last week from 439,000, according to the median forecast of 47 economists in a Bloomberg News survey before the Labor Department report. It would be the lowest level since August 2008. Hoenig said the Fed should consider raising its key interest rate, now in a range of zero to 0.25 percent, to prevent asset bubbles from emerging. “I would view a move to 1 percent as simply a continuation of our strategy to remove measures that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008,” according to the text of a speech yesterday in Santa Fe, New Mexico. Bund Outperformance Fed Chairman Ben S. Bernanke, speaking separately, said the U.S. economic rebound has yet to produce a significant recovery in jobs. German government bonds rose today, outperforming Treasuries, amid deepening concern that Greece will struggle to narrow the euro region’s biggest budget deficit. While policy makers are likely to keep the region’s main interest rate at a record low today, European Central Bank President Jean-Claude Trichet may announce changes to the collateral the central bank accepts for loans as it looks to support Greece. Treasury notes rose yesterday as 10-year yields near 4 percent spurred the strongest demand in at least 16 years at a $21 billion offering of the securities. Investors bid for 3.72 times the amount of available debt, the highest since at least 1994 and exceeding the 10-auction average of 2.87. 30-Year Sale The 30-year bonds scheduled for sale today yielded 4.74 percent in pre-auction trading, rising from 4.679 at the last sale of the securities March 11. Investors bid for 2.89 times the amount of debt on offer last month. The average for the past 10 sales including the March 11 auction is 2.55. Indirect bidders, the group that includes foreign central banks, bought 23.9 percent of the securities, compared with the 10-sale average of 40.6 percent. Thirty-year bonds have handed investors a 0.45 percent loss this year, versus a 0.97 percent gain for the whole market, according to indexes compiled by Bank of America Corp. The difference between two- and 30-year yields was at 369 basis points, or 3.69 percentage points. It climbed to as high as 389 basis points on Feb. 18. Two-year rates tend to track the Fed’s target for overnight lending because of their shorter maturity. Yields on longer-term bonds are more influenced by inflation and by the size of the government’s debt. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

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