Treasuries rose, sending five-year yields to a record low, as private data showed companies in the U.S. unexpectedly cut jobs in September, fueling speculation the Federal Reserve will increase purchases of debt.

Two-year rates also reached their lowest ever as ADP Employer Services said employment decreased by 39,000, versus the median estimate in a Bloomberg News survey for a gain of 20,000. Economists said figures tomorrow will show initial claims for jobless insurance increased and data the following day will reveal the unemployment rate rose. Yields slid this week as investors bet the Fed will follow the Bank of Japan in buying more bonds, a plan known as quantitative easing.

“QE looming over the market has created a backstop for Treasury prices,” said Sean Murphy, Treasury Trader in New York at Societe Generale. “ADP reinforces the idea that QE is going to be launched in November.”

Five-year yields dropped 6 basis points to 1.14 percent at 8:34 a.m. in New York, according to BGCantor Market Data. The 1.25 percent security due in September 2015 rose 9/32, or $2.81 cents per $1,000 face amount, to 100 17/32. The rate touched 1.1303 percent, the least on record.

The five-year yield may fall to less than 1 percent, said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich.

Two-year notes yielded 0.39 percent, after touching the all-time low of 0.3829 percent. The 10-year security fell 6 basis points to 2.41 percent.

Jobless Claims

Speculation the Fed will purchase additional Treasuries as a way to pump money into the economy has been rising as New York Fed President William Dudley, the Boston Fed’s Eric Rosengren and Chicago’s Charles Evans all advocated further action. Fed Chairman Ben S. Bernanke said Oct. 4 that restarting large-scale asset purchases would probably spur growth, after saying last week the central bank has a duty to aid the economy as unemployment holds near 10 percent.

U.S. initial jobless claims increased by 2,000 to 455,000 in the week ended Oct. 2, according to a Bloomberg News survey before tomorrow’s report. The unemployment rate rose to 9.7 percent in September from 9.6 percent in August, based on a separate survey ahead of the Oct. 8 data.

Investors in Treasuries are enjoying the “best of all worlds” as the Fed struggles to boost inflation expectations and data point to slower growth, Societe General SA said.

‘Holy Grail’

“We may have come a long way, and nirvana it may be, but we haven’t yet found the holy grail,” Ciaran O’Hagan, a fixed- income strategist in Paris, wrote today in a research report. “There is a belief that the Fed is both impotent and too late. The near-term data calendar is looking promising -- for bond holders, that is. Friday’s employment report should be the final clincher” for an expansion of asset purchases, he wrote.

The Fed is scheduled to purchase Treasuries maturing from March 2013 to August 2014 today, according to its website, as part of its effort to keep borrowing costs low. It will provide the next update of approximate purchase amounts and schedule on Oct. 13, according to the website.

Investors are demanding near-record amounts of yield to own 30-year bonds instead of 5-year notes because of speculation the central bank will focus on shorter-maturity debt if policy makers expand purchases of government securities.

The spread between the two rates was at 2.56 percentage points, nearing the 2.60 points reached on Aug. 11.

Assets Purchase

“In the prospects of QE, the short end of the curve is benefitting most and the back end is lagging,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “Core government bonds are slightly running out of steam and then need further evidence of a prolonged slowdown” to continue rising, he said.

Japan’s decision yesterday to set up a 5 trillion-yen ($60 billion) fund to buy assets and to cut its benchmark interest rate to spur growth fueled expectations the Fed will follow. The Bank of Japan lowered its key rate to a range of zero percent to 0.1 percent from the previous 0.1 percent target.

Expectations for central-bank action have already led to lower interest rates, higher stock prices and a weaker dollar, according to Goldman Sachs Group Inc.

The Standard & Poor’s 500 Index rose 2.1 percent yesterday to the highest level since May. The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major U.S. trading partners, slid today to the lowest since January.

Next Fed Meeting

The Fed will probably move to spur growth as soon as its next meeting on Nov. 2-3, analysts led by Jan Hatzius, the New York-based chief U.S. economist at Goldman Sachs, wrote in their e-mail to clients.

Hatzius said yesterday at a forum in Washington that another $1 trillion of asset purchases by the Fed would probably lower long-term interest rates by about 0.25 percentage point, adding a “few tenths of additional GDP growth.”

Yields reflect expectations for the Fed to buy about $1 trillion of assets, Ajay Rajadhyaksha and Dean Maki at Barclays Plc wrote in a report yesterday. Widening swap spreads indicate the purchases will mostly be Treasuries, according to Barclays, one of the 18 primary dealers that are required to bid at the government’s debt sales.

The 10-year swap rate increased to as much as 10.8 basis points more than the Treasury yield, the most since June 9.

In a swap, investors exchange fixed and floating interest rates. The spread is the difference between the fixed rate and the yield on similar-maturity Treasuries.

The Fed bought $1.7 trillion worth of Treasury and mortgage debt in a program that ended in March. The purchases helped push mortgage rates to historic lows.