By Matthew Brown and Wes Goodman June 4 (Bloomberg) -- Treasury 10-year yields stayed near a two-week high before a government report that economists said will show U.S. employment grew at the fastest pace since 1983. Government securities headed for a second weekly loss as stock gains damped demand for the safest government securities. Payrolls increased by 536,000 in May and unemployment fell to 9.8 percent, according to a Bloomberg survey before the data is published today. A report yesterday showed the number of Americans seeking jobless benefits last week fell to a lower level than economists predicted. “We doubt that Treasuries can sustain these kinds of levels with the prospect of a strong labor market report today,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets in Edinburgh. “An above-consensus number will benefit equities at the expense of Treasuries.” Benchmark 10-year notes yielded 3.36 percent at 8:38 a.m. in London, according to BGCantor Market Data. The 3.5 percent security due in May 2020 traded climbed 1/32, or 31 cents per $1,000 face amount, to 101 4/32. Ten-year rates climbed to 3.42 percent yesterday, a level not seen since May 18. The Standard & Poor’s 500 Index rose for a second day yesterday, the first back-to-back gain since April, curtailing demand for debt. The Stoxx Europe 600 Index climbed 0.7 percent today. Government Auctions Auctions by the government next week will consist of $36 billion in three-year notes on June 8, $21 billion in 10-year notes on June 9 and $13 billion in 30-year bonds on June 10. The $70 billion total, while down from $78 billion at the last sale of these securities in May, is more than forecast by economists before the announcement yesterday. U.S. total public debt surpassed $13 trillion this month for the first time, according to the Treasury Department. “The debt will become a problem” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “Interest rates may have to rise to attract investors. That will be a big burden on the government and the people.” The 10-year yield will advance 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. Deutsche Bank projects the figure will advance to 4.25 percent by Dec. 31. BNP forecasts 3.5 percent in the coming days. Both companies are among the 18 primary dealers that are required to bid at government debt sales. U.S. Jobs The U.S. is adding more job, driven by government hiring of temporary workers for the census. General Electric Co., the world’s largest maker of jet engines, is among companies hiring as economies recover from 2009’s global recession. Initial jobless claims dropped to 453,000 in the week ended May 29, Labor Department figures showed yesterday in Washington. Economists surveyed by Bloomberg News projected claims would drop to 455,000, according to the median forecast. The London interbank offered rate has stopped rising after surging over the past three months, indicating banks are becoming more willing to lend as the European debt crisis eases. 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. Central bank officials differ on the outlook for inflation. Kansas City Fed Bank President Thomas Hoenig said the U.S. economic recovery has the momentum to sustain itself and called for an increase in the target federal funds rate to 1 percent by the end of the summer. Policy makers have kept the target in a range of zero to 0.25 percent since December 2008. Fed Comments Keeping rates low may lead to asset bubbles or inflation over time, Hoenig said yesterday in Bartlesville, Oklahoma. Fed Bank of Dallas President Richard Fisher said “inflation is clearly not issue,” speaking yesterday in Dallas. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, widened to 2.10 percentage points from 1.83 percentage points on May 21. Last month’s figure was the lowest since October. The five-year average is 2.14 percentage points. This week’s decline in Treasuries marks a reversal from May, when a tumbling euro sent investors to the safety of U.S. debt. Treasuries due in 10 years and longer returned 6.4 percent since the end of March after accounting for currency changes, the most of 144 debt indexes tracked by the Paris-based European Federation of Financial Analysts Societies. The MXWO World Index fell 9 percent in the period. Emergency Stimulus Group of 20 central banks are delaying their withdrawal of emergency stimulus as Europe’s debt crisis shakes financial markets and threatens to hinder the global recovery. G-20 finance chiefs begin talks today in Busan, South Korea, after central banks from Australia to Canada identified investor reaction to Europe’s indebtedness as a hurdle to higher interest rates. Futures on the CME Group Inc. exchange show a 39 percent chance U.S. policy makers will raise the benchmark rate by at least a quarter-percentage point this year, versus 66 percent a month ago. To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

Source