By Wes Goodman

March 30 (Bloomberg) -- Treasuries advanced, heading for their first monthly gain this year, as the Federal Reserve prepared to buy today for a third time in its effort to cut borrowing costs.

The central bank is scheduled to purchase securities due from August 2026 through February 2039, and it has announced plans to buy again on April 1 and April 2. A government report at the end of the week may show the jobless rateclimbed in March to the highest level since 1983, helping drive demand for the relative safety of government debt.

“There is some room for yields to go down,” said Kei Katayama, who oversees $1.6 billion of non-yen debt as leader of the foreign fixed-income group in Tokyo at Daiwa SB Investments Ltd., part of Japan’s second-biggest investment bank. “The Fed will purchase securities. That’s the most positive factor” this week.

The 10-year note yield declined two basis points to 2.74 percent as of 11:01 a.m. in Tokyo, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 rose 5/32, or $1.56 per $1,000 face amount, to 100 2/32. A basis point is 0.01 percentage point.

The yield dropped about a quarter percentage point this month. It fell to a record low of 2.04 percent on Dec. 18, has averaged 4.25 percent for the past five years. Ten-year rates will begin to lose value when they decline to 2.5 percent, Katayama said.

Monthly Gain

Government securities have returned 1.8 percent so far this month, the biggest gain since December, according to Merrill Lynch & Co.’s U.S. Treasury Master index.

Treasuries also rose after Spain launched its first major bank rescue in 16 years as the state took over Caja Castilla-La Mancha, said Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Inc., the world’s largest broker of exchange-traded futures and options contracts.

U.S. Treasury Secretary Timothy Geithner said yesterday some financial institutions will need substantial government aid. The unemployment rate jumped to 8.5 percent from 8.1 percent in February, according to the median estimate of analysts surveyed by Bloomberg News before the Labor Department’s April 3 report.

Fed Chairman Ben S. Bernanke’s plan to purchase $300 billion of Treasuries may already be helping him lower consumer borrowing rates.

Mortgage Rates

Mortgage and corporate securities are outperforming Treasuries this quarter for the first time since the period ended in June, before the collapse of Lehman Brothers Holdings Inc. drove investors to the safest debt and froze credit markets, Merrill’s data show.

A survey by Ried, Thunberg & Co. on March 23 said fund managers overseeing $1.19 trillion cut their holdings of government securities to the least this year while they increased mortgage assets.

“We don’t think Treasuries are very thrilling,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., which holds $90 billion in fixed-income assets. Bernanke wants to keep Treasury rates low so “investors do what we’re doing, that is, jump in and drive all the spreads down,” he said of the gap between yields of riskier assets and government debt.

To contact the reporter on this story: Wes Goodman in Singapore atwgoodman@bloomberg.net.