Five-Year Notes

Yields on five-year notes gained three basis points to 0.89 percent after a report showed U.S. service industries unexpectedly expanded at a faster pace in August and on speculation the Fed won't increase holdings of the maturities.

The Institute for Supply Management's index of U.S. non-manufacturing businesses increased to 53.3 last month from 52.7 in July, the Tempe, Arizona, group reported today. Economists forecast the gauge would drop to 51, according to the median estimate in a Bloomberg News survey. A reading above 50 signals expansion.

Bernanke will speak on the U.S. economic outlook Sept. 8 in Minneapolis. Fed officials will gather for a two-day meeting Sept. 20 that was originally scheduled to last one day in order to "allow a fuller discussion" of the economy and the central bank's possible policy response.

The U.S. had zero job growth in August, and the unemployment rate held at 9.1 percent, the Labor Department's payrolls report showed Sept. 2.

Term Premium

The so-called term premium, which Bernanke cited in a 2006 speech in New York as a useful guide in setting monetary policy, was negative 0.51 percent today, compared with an average 0.84 percent for the gauge this decade through mid-2007. The term premium touched negative 0.55 percent on Sept. 2, the lowest ever according to Bloomberg data beginning in 1976.

"Investors aren't buying for yield right now," said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., a primary dealer. "We are further along in the deleveraging process than we were when the crisis began and people are still willing to buy Treasuries, which tells you that concern over credit globally remains."

Demand for longer maturities, which are most sensitive to inflation outlook, cause the extra yield that investors get for buying 10-year notes instead of two-year debt to narrow to 1.74 percentage points, the least since March 2009.

Deutsche Bank AG Chief Executive Officer Josef Ackermann said yesterday in Frankfurt that conditions in stock and bond markets are reminiscent of the 2008 financial crisis.