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Treasuries Set for Weekly Gain Before Bernanke Speaks on Economy

Jan. 3 (Bloomberg) -- Treasuries headed for their first weekly gain in seven weeks before Federal Reserve Chairman Ben S. Bernanke speaks at an economics conference as investors debate whether the recovery can withstand an end to stimulus.

Ten-year yields fell after climbing above 3 percent yesterday to the highest in almost 2 1/2 years. Analysts predict a report next week will show U.S. employers added fewer workers last month. The nation’s growth will slow after surging to 4.1 percent in the third quarter of last year, the most since the final three months of 2011, according to a Bloomberg News survey. Bernanke will speak to the American Economic Association in Philadelphia, four weeks before his term expires on Jan. 31.

“We see yields coming down in the next few sessions,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “The trend in yields is still higher but there’s no hurry to do that. This will come gradually if the economy continues to improve. For now 3 percent was tested and rejected, so at least until the payrolls we are safe in this environment.”

The benchmark 10-year yield was little changed at 2.99 percent as of 6:35 a.m. New York time. The price of the 2.75 percent note due November 2023 was at 97 31/32, according to Bloomberg Bond Trader data. The rate climbed to 3.05 percent yesterday, the most since July, 2011.

Treasuries opened in London after being closed in Japan for a holiday. The 10-year yield has fallen one basis point this week, headed for the first weekly decline since the five days ended Nov. 15.

Tapering Stimulus

The Fed said on Dec. 18 it will cut its stimulus program of monthly bond purchases, known as quantitative easing, to $75 billion from $85 billion starting this month.

Policy makers will pare purchases by $10 billion in each of its next meetings before ending the program late this year as the economy strengthens and unemployment decreases, the median forecast of analysts surveyed by Bloomberg on Dec. 19 indicates.

The prospect of tapering sent U.S. government securities down 3.4 percent in 2013, the first annual decline since 2009’s record 3.7 percent loss, based on Bank of America Merrill Lynch data.

U.S. companies increased employment by 198,000 last month, down from a 215,000 gain in November, ADP Research Institute in Roseland, New Jersey will say on Jan. 8, according to the median prediction of 10 economists in a Bloomberg survey. A Labor Department report two days later will show employers added 193,000 workers in December, versus 203,000 in November, a separate survey indicates.

Low Rates

In their statement, Fed officials said it “likely will be appropriate to maintain the current target range for the federal funds rate well past” their 6.5 percent jobless-rate threshold, especially if inflation stays below the central bank’s 2 percent target. The benchmark interest rate has been a range of zero to 0.25 percent since 2008.

“For the first quarter, yields will go down a little,” said Allen Lei, a Treasuries trader in Taipei at Hontai Life Insurance Co., which oversees the equivalent of $6.2 billion. “I don’t think the economy will be as strong.”

The 10-year yield may fall by 10 to 15 basis points in the first quarter, Lei said.

Economic growth was 1.5 percent in the fourth quarter of 2013 and will be 2.6 percent in the first three months of 2014, according to a Bloomberg survey of economists.

Ten-year yields will rise to 3.38 percent by year-end, based on a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.

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