Treasuries declined, led by longer maturities, before an industry report that economists said will show U.S. service industries expanded in January. Benchmark 10-year yields approached the highest since April after euro-area data showed services and manufacturing output based on a survey of purchasing managers was revised higher last month. German bunds also declined as a rally in equities curbed demand for the safest assets. The Federal Reserve said last week that it remains committed to buying about $85 billion of government and mortgage securities a month. “We’ve had slightly better PMIs from some of the euro zone countries, which has knocked bunds and Treasuries are going with that,� said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “People are waiting to see if the rally in risk assets has got legs. The U.S. data has been better than it was, which is welcome, but it’s not yet strong to the point where QE will be wound up soon,� referring to the Fed’s asset-purchase program, known as quantitative easing. The benchmark 10-year yield climbed four basis points, or 0.04 percentage point, to 1.99 percent at 6:53 a.m. New York time, according to Bloomberg Bond Trader prices, after rising to 2.06 percent yesterday, the most since April 12. The 1.625 percent note maturing in November 2022 fell 10/32, or $3.13 per $1,000 face amount, to 96 3/4. Yields on German 10-year bunds also gained four basis points, to 1.66 percent. U.S. Data The Institute for Supply Management’s U.S. non- manufacturing index was 55 in January after climbing to a 10- month high of 55.7 in December, according to a Bloomberg News survey. A reading above 50 indicates expansion. Fed Bank of St. Louis President James Bullard and Fed Bank of Dallas President Richard Fisher both said this month the central bank should reduce the pace of its asset purchases if growth picks up. Bullard votes on monetary policy this year, while Fisher doesn’t. European services and manufacturing output shrank less than initially estimated in January, adding to signs the currency bloc’s economy is beginning to emerge from recession. A composite index rose to 48.6 from 47.8 in December, London-based Markit Economics said in a report today. That’s above an initial estimate of 47.2 published on Jan. 24. A reading below 50 indicates contraction. The difference between five-year swap rates and same- maturity Treasuries was 16 basis points, after reaching 16.25 yesterday, the most since Sept. 26, on a closing-price basis. A widening spread suggests investors are seeking refuge in government bonds. Treasury 10-year yields tumbled yesterday from a 10-month high on concern political uncertainty in Spain and Italy threatened to intensify Europe’s fiscal crisis. That pared a surge this year on speculation the U.S. economy will grow enough to allow the Federal Reserve to reduce its debt purchases. Treasuries have handed investors a 0.9 percent loss this year as of yesterday, according to Bank of America Merrill Lynch indexes, as money managers sought higher-yielding assets. To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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