(Bloomberg) -- Treasury 10-year note yields fell from the highest in almost three months as investors weighed prospects for the Federal Reserve’s bond purchases after data showed the economy added more jobs than forecast last month.

U.S. 10-year yields erased the increase that followed data showing payrolls grew by 203,000 positions and the jobless rate reached a five-year low. Thirty-year bond yields touched the highest in more than two years. Policy makers at the Fed, which buys $85 billion a month to push down borrowing costs and spur growth, meet Dec. 17-18. They said at their last meeting buying may start slowing “in coming months” as the economy improves.

“The data is not the knockout blow by itself that brings on tapering,” said Jay Mueller, who manages about $2 billion of bonds at Wells Capital Management in Milwaukee. “The Fed is in no hurry to change from a very accommodative stance. Every time you get a little better-than-expected report, it brings us closer to the end of the party.”

Benchmark 10-year note yields fell one basis point, or 0.01 percentage point, to 2.86 percent at 12:16 p.m. New York time, Bloomberg Bond Trader data showed. The price of the 2.75 percent security due in November 2023 added 3 cents, or 94 cents per $1,000 face amount, to 99 1/32. Earlier, the yields climbed as much as six basis points to 2.93 percent, the highest level since Sept. 13. They have increased 12 points over the past five days in a third weekly advance, the longest stretch since June.

Thirty-year bond yields jumped as much as five basis points to 3.96 percent, the highest level since August 2011, before trading at 3.91 percent, down one basis point. They have increased 10 basis points on the week.

Higher Volatility

A gauge of Treasuries volatility reached the highest level this week in almost two months. The Bank of America Merrill Lynch MOVE index reached 76.1 yesterday, the most since Oct. 11.

The November increase in payrolls followed a revised 200,000 advance in October, Labor Department figures showed today in Washington. The median forecast of 89 economists surveyed by Bloomberg called for a 185,000 advance. The unemployment rate fell to 7 percent.

“The market was pricing in a number like we saw today,” said Sean Simko, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. “So when the number hit, there’s a knee- jerk reaction higher in yield, but then it quickly reversed course to where the market was trading before. When you take a step back, I don’t think it changes the picture of the Fed tapering.”

Yields on 10-year notes jumped as much as 16 basis points on Nov. 8 after the Labor Department reported that payrolls expanded in October by almost double a Bloomberg survey’s median forecast of 120,000.

‘Warrant Trimming’

Minutes of the central bank’s Oct. 29-30 meeting, released Nov. 20, said officials expected economic data to show improvement in the labor market and “warrant trimming the pace of purchases in coming months.”

In a Bloomberg Global Poll Nov. 19, four of five investors said they expected the Fed to put off a decision to start cutting bond buying until March 2014 or later.

Bill Gross, manager of the world’s biggest bond fund, said the pace of payroll growth in November signals there’s a 50 percent chance the Fed will begin tapering its monthly bond purchases this month.

“It’s at least 50-50 now,” Pacific Investment Management Co.’s Gross said in a radio interview on Bloomberg Surveillance with Tom Keene and Mike McKee. “There was some logic for a January starting point, but it’s clear the Fed wants out. The Fed still has to be careful even when they begin to taper,” given the recent pace of growth has produced growth at only about 2 percent so far, he said.

Consumer Spending

In a separate government report, the price index tied to consumer spending, a measure of inflation tracked by Fed policy makers, increased 0.7 percent in October from a year earlier. It was the least since October 2009. The central bank’s goal is to keep prices increasing at around 2 percent.

Core prices, which exclude the volatile food and fuel categories, rose 0.1 percent from September and were up 1.1 percent from October 2012, the data showed.

The extra yield that Treasury 10-year notes offer over the U.S. inflation rate was 1.91 percentage points. Real yields haven’t been so high since February 2011, data compiled by Bloomberg show.

‘Fairly Priced’

“The market is fairly priced here,” said Scott Minerd, global chief investment officer of Guggenheim Partners LLC, who oversees more than $190 billion from Santa Monica, California. “What the morning’s data is telling us is that the Fed is probably going to wait to see more data before they make a decision about tapering. They will be on hold, at least until January, to give them more time to see more data. Tapering will likely begin in March.”

The Fed bought $5.1 billion of Treasuries today maturing between March and August 2018 as part of its purchase program.

Bonds fell earlier this week as other reports showed initial claims for jobless benefits unexpectedly fell last week, gross domestic product grew more in the third quarter than first estimated, and manufacturing increased last month.

Gross domestic product expanded at a 3.6 percent annualized rate in the third quarter, up from an initial estimate of 2.8 percent and the most since the first quarter of 2012, the Commerce Department said yesterday. First-time claims for employment benefits fell 23,000 to 298,000 last week, the Labor Department said. The Institute for Supply Management’s manufacturing index increased to 57.3 in November, the highest since April 2011, the group said Dec. 2.

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