(Bloomberg) -- Treasury 10-year notes rose for a third day on speculation some investors perceived yields near the highest level in three months offer value as they weigh when the Federal Reserve will start to slow asset purchases.

Treasuries rallied as Fed Bank of St. Louis President James Bullard said any reduction in the pace of stimulus should be small because inflation is slow. Dallas Fed President Richard Fisher said yesterday tapering needs to begin “as soon as possible” in an economy that doesn’t need any more help. Benchmark 10-year Treasury yields rose to the most in almost three months last week after a report showed the economy added more jobs than analysts forecast last month.

“There will be buyers at these levels,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. “Going into year-end there will be demand. As long as the front-end remains anchored, the longer-end looks to have a little bit of value. I think we move back into the middle of the 2.5 to 3 percent range.”

The U.S. 10-year yield fell two basis points, or 0.02 percentage point, to 2.82 percent at 7:36 a.m. in New York, according to Bloomberg Bond Trader prices. The 2.75 percent note due in November 2023 rose 6/32, or $1.88 per $1,000 face amount, to 99 13/32. The yield climbed to 2.93 percent on Dec. 6, the highest level since Sept. 13.

Rate Outlook

Treasury 10-year yields may peak at 3 percent after the Fed acts, said Yoshiyuki Suzuki, Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co., which oversees about $56 billion. “We don’t have to worry about a policy rate increase,” which will limit any advance in yields, he said.

Investors see an 11 percent chance that policy makers will increase their target for the federal funds rate to 0.5 percent or higher by January 2015, based on data compiled by Bloomberg from futures contracts.

The St. Louis Fed’s Bullard said the odds of a reduction in stimulus have risen along with gains in the labor market.

“A small taper might recognize labor-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014,” said Bullard, who votes on policy this year but not next. “Should inflation not return toward target, the committee could pause tapering at subsequent meetings.”

‘Enough Firepower’

The Dallas Fed’s Fisher told reporters after a speech in Chicago the central bank should start trimming stimulus straight away as the economy already has “enough firepower.” He votes on policy next year.

Economists predict a government report on Thursday will show growth in retail sales accelerated in November, based on a Bloomberg survey.

Benchmark 10-year yields will increase to 3.41 percent, according to Bloomberg News surveys of banks and securities companies with the most recent predictions given the heaviest weightings.

The Treasury plans to sell $30 billion of three-year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds the next day.

The three-year notes scheduled for sale today yielded 0.65 percent in pre-auction trading, compared with 0.644 percent at the previous auction of the securities on Nov. 12. Investors bid for 3.46 times the amount of debt offered in November, the highest level since March at the monthly sales.

Treasuries due in one to three years have returned 0.4 percent in 2013, data compiled by Bloomberg show.

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