Treasury 10-year (USGG10YR) note yields climbed to a 22-month high as government bonds tumbled from Australia to Portugal after Federal Reserve Chairman Ben S. Bernanke said policy makers may end bond purchases in mid-2014. The 10-year yields pared the advance after U.S. jobless claims rose more than forecast. The yields surged the most since 2011 yesterday, when Bernanke said the Fed may “moderate� its $85 billion in monthly purchases later this year if growth is consistent with its forecasts. German bund yields rose to a four-month high while yields on South Korean five-year notes increased by the most since September 2010. U.K. five-year gilt yields jumped as demand fell at an auction of the securities. “The longs in the bond market are very large, and people are looking at these statements and saying let me get out -- they have no choice but to sell,� said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “I’m sure the Fed will be a little bit concerned with the speed of the move.� Long positions are bets an asset will increase in value. The benchmark 10-year Treasury yield rose five basis points, or 0.05 percentage point, to 2.40 percent at 9:29 a.m. New York time after reaching 2.47 percent, the highest since Aug. 8, 2011, according to Bloomberg Bond Trader prices. The yield jumped 17 basis points yesterday, the most since October 2011. The price of the 1.75 percent security due in May 2023 fell 13/32, or $4.06 per $1,000 face amount, to 94 9/32. Long Bonds The 30-year bond yield rose above 3.5 percent for the first time since September 2011, reaching 3.53 percent. Seven-year note yields climbed as much as 11 basis points to 1.89 percent, the highest since August 2011. U.S. claims for jobless benefits climbed by 18,000 to 354,000 in the week ended June 15 from a revised 336,000 the prior period, the Labor Department reported today in Washington. The median forecast of 46 economists surveyed by Bloomberg called for 340,000. The U.S. plans to auction $7 billion in 30-year Treasury Inflation Protected Securities today. Bonds across the Asia-Pacific region fell while equities declined. Japan’s 10-year yield climbed four basis points to 0.85 percent. Australia’s 10-year yield rose as much as 23 basis points to 3.65 percent, a level unseen since March 15, and New Zealand’s 10-year rate surged 30 basis points to 4.09 percent, the biggest jump since October 2008. South Korea’s five-year (GUKG5) sovereign bond yields rose 14 basis points to 3.16 percent. The MSCI Asia Pacific Index of shares slumped 3.9 percent and the Stoxx Europe 600 Index slid 2.2 percent. MSCI’s World Index declined 1.7 percent, following a 0.6 percent drop yesterday. German Bunds The yield on 10-year German bunds rose as much as 12 basis points to 1.68 percent, the highest level since Feb. 20. Spanish 10-year yields jumped as much as 34 basis points to 4.87 percent, while the rate on similar-maturity Portuguese debt increased 34 basis points to 6.41 percent. The U.K. sold five-year gilts at an average yield of 1.422 percent, the Debt Management Office said. Investors bid for 1.33 times the amount of securities on sale, down from a bid-to-cover ratio of 1.78 at a previous auction on May 14. That’s the lowest since June 12, 2012, according to data compiled by Bloomberg. Five-year yields climbed 21 basis points to 1.45 percent after reaching 1.48 percent, the highest level since Oct. 28, 2011. Fed Purchases The Fed has been buying $45 billion of Treasuries and $40 billion of mortgage securities each month to put downward pressure on borrowing costs in its third round of asset purchases. (ETSLMOM) It has kept its target rate for overnight lending between banks at zero to 0.25 percent since December 2008 to support the economy. The central bank will purchase as much as $3.5 billion of Treasuries maturing in August 2020 to May 2023 today, according to the New York Fed website. After a two-day policy meeting of the Federal Open Market Committee that ended yesterday, the Fed left unchanged its statement that it plans to hold its target interest rate at almost zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent. Fed officials lowered estimates for unemployment and inflation, while characterizing the recent drop in consumer prices as transitory. Central bank policy makers now expect a jobless rate of 7.2 percent to 7.3 percent this year, according to forecasts released yesterday, compared with 7.3 percent to 7.5 percent in their March estimates. They predict unemployment will fall to 6.5 percent to 6.8 percent in 2014. Rate Bets “If the Fed is right in its assessment, then it’s likely bond yields will continue to rise because the market will start to price in the Fed funds going up, probably in 2015,� said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London, referring to the central bank’s main interest rate. “If any point between now and the year-end, we get weak data, the Fed will have to reconsider its strategy. The Fed’s forecasts might be on the optimistic side.� The probability that the central bank will increase its benchmark rate target by at least a quarter-percentage point by October 2014 was 40 percent, Fed funds futures showed. The likelihood was 33 percent on June 18. “The FOMC was more hawkish that we had expected,� Goldman Sachs Group Inc. economists Jan Hatzius and Sven Jari Stehn wrote in a research note dated yesterday. “The risk to our forecast of QE tapering starting December has increased.� Purchases in the U.S. of previously owned houses increased 0.6 percent from a month earlier to a 5 million annualized rate in May, the strongest since November 2009, according to the median forecast of economists surveyed by Bloomberg before data from the National Association of Realtors today. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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