Treasuries Advance on Speculation U.S. Housing Slump to Deepen

Treasury notes rose before a government report that will probably show the U.S. real-estate slump deepened last month, bolstering the case for another reduction in interest rates by the Federal Reserve.

Fed fund futures today showed traders have increased bets on the central bank lowering the target rate by a quarter-point on Dec. 11 to spur the economy. Economists in a Bloomberg News survey predict purchases of new homes in the U.S. fell 2.6 percent to an annual pace of 750,000 in October. The report is due at 10 a.m. in Washington.

``It looks like the market will get what it wants from the Fed this month, and that's a rate cut,'' said Kornelius Purps, fixed-income strategist at Unicredit Markets & Investment Banking in Munich, the investment arm of Italy's biggest bank. ``I'm afraid we will see more negative headlines coming. Treasury yields will have to fall further.''

Five-year note yields fell 2 basis points to 3.49 percent as of 10:14 a.m. in London, according to bond broker Cantor Fitzgerald LP. The price of the 3 7/8 percent security due in October 2012 rose 2/32, or 63 cents per $1,000 face amount, to 101 24/32.

Five-year yields have climbed more than a quarter percentage point since the start of the week as the Treasury Department prepares to sell $13 billion of the notes today.

The 10-year note yield declined 1 basis point to 4.03 percent. It will fall to 3.90 percent by the end of the year, Purps predicted.
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