By Wes Goodman June 3 (Bloomberg) -- Treasury yields were at the highest level in almost a week before reports today and tomorrow that economists said will show employers are hiring as the recovery takes hold. The London interbank offered rate has stopped rising after surging over the past three months, indicating banks are becoming more willing to lend and the European debt crisis that sent stocks tumbling in May is easing. “The world didn’t end,” Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest inter-dealer broker, wrote to clients. “Far from it,” the note today said. “Yields will rise,” said Tsutomu Komiya, who handles U.S. government debt in Tokyo at Daiwa Asset Management Co., which has $77 billion in assets. “The labor market will recover and the economy will expand, even if the growth rates are slow.” Ten-year notes yielded 3.35 percent as of 7:12 a.m. in London, according to data compiled by Bloomberg. Yields were at the highest level since May 28. The 3.5 percent security due in May 2020 traded at 101 1/4. Ten-year rates will climb to 3.93 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Komiya predicts 3.5 percent. Employment Increase A report from ADP Employer Services today will show businesses added 70,000 jobs in May, the most since the recession began in December 2007, according to the median forecast among economists surveyed by Bloomberg News. Figures from the Labor Department may show initial claims for jobless benefits fell for a second week, a separate survey showed. The department will report tomorrow the U.S. added jobs for a fifth month, according to the surveys. General Electric Co., the world’s largest maker of jet engines, is among companies hiring. Libor, which banks pay for three-month dollar loans, was 0.538 percentage point yesterday, unchanged from a week earlier. It has surged from 0.252 percent at the end of February. Treasuries returned 1.7 percent last month, the most since March 2009, according to Bank of America Merrill Lynch indexes. The MSCI World Index fell almost 10 percent, spurring demand for the relative safety of U.S. government securities. Inflation expectations are reviving. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, widened to 2.06 percentage points from 1.83 percentage points on May 21. Last month’s figure was the lowest since October. Scaling Back Debt The U.S. is scheduled to announce today how much it plans to sell in three-, 10- and 30-year debt next week. The Treasury will reduce the amount of notes and bonds it sells by the most since global credit markets collapsed, according to a Bloomberg News survey. Nine of the 18 primary dealers required to bid on U.S. auctions estimate the U.S. will auction $37 billion in three- year debt, $20 billion in 10-year notes and $13 billion in 30- year bonds over three days beginning June 8. The $70 billion total would be down from $78 billion in the week of May 10. President Barack Obama is starting to scale back borrowing after expanding debt sales to finance annual budget deficits exceeding $1 trillion. Bond dealers expect the 2010 shortfall to be smaller than the official $1.6 trillion White House forecast, and the Treasury indicated that tax revenue is increasing as the economy recovers from a recession. Treasuries rose early in Asia on speculation the Gulf of Mexico oil leak will slow U.S. gross domestic product growth. Oil Spill “The spill will be bad for the economy, especially the oil-producing states,” said Satoshi Okumoto, a general manager at Fukoku Mutual Life Insurance Co. in Tokyo, which has the equivalent of $61.9 billion in assets. “It will also hurt the fishing and tourism industries. That will help Treasury yields to stay low.” Government securities gave up their gains as stocks climbed, sending the MSCI Asia Pacific Index of shares up 2.6 percent, the most since February. The cost of insuring bonds in Asia and the Pacific from non-payment dropped, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 10 basis points to 1.35 percentage points, according to Royal Bank of Scotland Group Plc. Credit Risk Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of credit quality and a drop shows improvement. Treasuries fell yesterday as pending U.S. home resales increased in April more than economists forecast and stocks rallied. “We’ve had a pretty good rally in the last few weeks due to global concerns,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo & Co. in Milwaukee. “As some of the air of fear starts to abate, some reversal from the fear trade is occurring.” To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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