Prices of U.S. government debt fell Wednesday for a fifth day, the longest skid in three months, amid concern investors are misjudging when the Federal Reserve will raise borrowing costs next year.

Yields on benchmark 10-year notes reached the highest in a month, bolstering foreign demand at the government’s auction of $21 billion in the securities. Treasurys are the world’s worst-performing bonds this quarter as the Fed prepares to end its bond buying while the European Central Bank introduced additional stimulus. Analysts said data this week will show jobless claims fell and retail sales increased, adding to the case for the Fed to raise rates.

“There’s some nervousness over Fed policy,” said Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York. “As we get closer to ending quantitative easing, there’s always a risk the Fed comes out and says something a little bit more hawkish. We’re starting to see a bottom in global rates in general.”

The U.S. 10-year yield rose four basis points, or 0.04 percentage point, to 2.54 percent at 5 p.m. New York time after touching the highest since Aug. 1, according to Bloomberg Bond Trader data. The price of the 2.375 percent note due in August 2024 fell 10/32, or $3.13 per $1,000 face amount, to 98 17/32.

The last five-day slump in 10-year notes ended June 4.

Treasury Auction

The notes sold Wednesday yielded 2.535 percent, matching the forecast in a Bloomberg News survey of six of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.71, equaling the average at the past 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 53 percent of the notes, the highest since December 2011 and compared with an average of 45.3 percent for the past 10 sales.

“The auction went fairly well, with a strong indirect bid suggesting international relative-value players likely still see good value in 10-year notes north of 2.5 percent,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “It was a surprisingly good result given the negative tone of the bond market of late.”

The auction was rated a “three,” on a scale of one to five with five being outstanding, by six of the Fed’s primary dealers.

Wednesday’s offering was the second of three note and bond sales this week totaling $61 billion. The U.S. sold $27 billion of three-year debt Tuesday at a yield of 1.066 percent and will auction $13 billion of 30-year bonds Thursday.

Worst Performers

Treasurys have returned 0.4 percent since June 30, the worst result of 26 sovereign bond markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.

U.S. government securities maturing in three to five years have lost 0.2 percent this quarter, the biggest decline among 144 debt indexes compiled by Bloomberg and EFFAS.

Euro-area government bonds made 2.4 percent in that period, according to the Bloomberg Eurozone Sovereign Bond Index. Spanish securities led losses in Europe Wednesday, with the 10-year yield rising as much as 10 basis points to 2.31 percent.

“We are seeing a big divergence in monetary policy, and also in the business cycle,” said Christoph Kind, head of asset allocation at Frankfurt Trust in Frankfurt, which manages about $20 billion. “The ECB is cutting rates and nothing like that is happening in the U.S. There are very good arguments for Treasurys to underperform.”

Claims, Retail

The appeal of U.S. government securities is waning amid signs the economy is improving.

Initial jobless claims fell last week, according to a Bloomberg News survey before Thursday’s Labor Department report. The Commerce Department will say on Friday that retail sales increased 0.6 percent last month after stagnating in July, according to a separate survey.

The yield spread between two- and 10-year Treasurys widened to 197 basis points, the most since Aug. 18. The steeper yield curve suggested investors sought higher returns on longer- maturity debt to compensate for acceleration in inflation as growth picks up.

Researchers at the San Francisco Fed wrote a report released this week that “the public might not give enough weight to how dependent the central bank’s guidance is on both current and incoming data.”

Traders see a 79 percent chance the Fed will increase its benchmark rate to at least 0.5 percent by September 2015, federal fund futures data showed Tuesday. That compares with a 73 percent probability seen on Aug. 29. Policy makers have kept their target for overnight lending between banks in a range of zero to 0.25 percent since December 2008.

The weighted average forecast in a Bloomberg survey of analysts is for 10-year yields to rise to 2.88 percent by the end of 2014. They were as low as 2.30 percent in August.