Treasury 10-year note yields touched their highest level in more than a week before a report forecast by economists to show service industries expanded for a 15th straight month in February. The yields dropped earlier as concern political unrest in the Middle East and North Africa may spread encouraged demand for the safest fixed-income assets. The U.S. Treasury will announce today the amount of 3-, 10- and 30-year debt it plans to auction next week. “There are conflicting forces, with an encouraging macro backdrop, though Treasuries have found some support from the geopolitical risk,” said Orlando Green, assistant director of capital-markets strategy at Credit Agricole SA in London. “The recovery, albeit with blips, is sustainable, and yields will gradually continue to rise.” The 10-year note yield increased one basis point, or 0.01 percentage point, to 3.48 percent at 7:46 a.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security maturing in February 2021 dropped 3/32, or 94 cents per $1,000 face amount, to 101 5/32. The benchmark note yield touched 3.49 percent, the highest level since Feb. 22. The two-year note yield was at 0.71 percent, while the yield on the 30-year bond increased one basis point to 4.58 percent. An index of U.S. debt due in more than a year has fallen 1.2 percent in the past three months, according to data compiled by the European Federation of Financial Analysts Societies and Bloomberg. Accounting for changes in exchange rates, the drop is the biggest among 26 bond markets around the world. U.S. Services The Institute for Supply Management’s non-manufacturing gauge slipped to 59.3 in February from a 59.4 reading in January, which was the highest since 2005, according to a Bloomberg News survey before the report today. Figures above 50 signal expansion. A separate report today from the Labor Department may show fewer than 400,000 workers filed claims for jobless benefits for the third time in four weeks. Treasuries fell yesterday after ADP Employer Services said companies in the U.S. added 217,000 workers in February, more than economists forecast. U.S. employers added 195,000 jobs last month, compared with 36,000 in January, according to the median forecast of 81 economists in a Bloomberg News survey before tomorrow’s payrolls report from the Labor Department. “The recovery is strengthening and getting more broad- based,” said Philip Marey, a senior market economist at Rabobank Group in Utrecht, Netherlands. “Inflation is returning to a certain extent, exerting upward pressure on yields.” Fed Debt Buying The Federal Reserve is scheduled to buy $6 billion to $8 billion of Treasuries due from May 2018 to February 2021 today as part of its plan to spur growth, according to the New York Fed’s website. Fed Chairman Ben S. Bernanke didn’t rule out yesterday expanding the central bank’s asset purchases, saying he doesn’t want to see the U.S. slip back into recession. Bernanke’s comments before the House Financial Services Committee bolstered speculation the central bank will complete $600 billion of Treasury purchases through June under quantitative easing and keep the benchmark interest rate near zero. The central bank’s efforts to spur the economy and rising oil prices may be fueling inflation expectations. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, reached 249 basis points today, the most since January 2010, before narrowing to 246 basis points. Libya Watch The Arab League said it’s weighing an offer to mediate in Libya’s civil conflict from Venezuela’s Hugo Chavez as his ally Muammar Qaddafi struggles to break out of his Tripoli base and regain rebel-held parts of the country. The league is holding discussions with Venezuela on sending mediators to Libya, said Hesham Youssef, chief of staff for the group’s Secretary General Amr Moussa, in a phone interview today. He didn’t give details and said Venezuela is also in talks with other countries. The U.S. will probably sell $32 billion of 3-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds next week, according to a report yesterday by Royal Bank of Canada’s RBC Capital Markets LLC, one of the 20 primary dealers that trade directly with the Fed. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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