Treasuries gained, pushing 10-year note yields to the lowest level this month, after European Central Bank President Mario Draghi damped speculation that more bond purchases are imminent.

Thirty-year bond yields dropped for a second day after a report that Europe’s banks will need to raise $153 billion in fresh capital. U.S. debt securities fell earlier today on reduced demand for a refuge as the ECB announced steps to make it easier for financial institutions to borrow and cut its target lending rate by a quarter-percentage point.

“The markets got excited when they heard that the ECB was stepping up its support of the banking system,” said Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co., in an interview on Bloomberg Television’s “In The Loop” with Betty Liu. “The markets got really disappointed when Draghi, the president of the ECB, said, ‘Hey, wait a minute, I was misinterpreted.’” Pimco operates the world’s biggest bond fund.

The yield on the benchmark 10-year note fell five basis points, or 0.05 percentage point, to 1.98 percent at 1:38 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent security due in November 2021 rose 14/32, or $4.38 per $1,000 face amount, to 100 5/32. The yield touched 1.97 percent, the lowest level since Nov. 29.

A one-point gain in 30-year bonds pushed yields down five basis points to 3 percent. Two-year yields decreased one basis point to 0.23 percent.

Roiling Markets

The ECB president roiled the markets, with Treasuries falling on bank-lending measures he described at a press conference after a policy meeting.

The central bank pledged for the first time to offer banks unlimited cash for three years and loosened the collateral rules it imposes when lending to financial institutions. The benchmark rate was lowered by a quarter-percentage point to 1 percent, matching a record low.

U.S. debt securities then rose as Draghi, who said Dec. 1 that “other elements” may follow a push toward a fiscal union, said he was “kind of surprised” that the remark was viewed as a suggestion that bond purchases would intensify.

Treasuries extended their increase after the European Banking Authority said Europe’s banks will need to raise fresh capital as part of measures introduced in response to the euro area’s sovereign-debt crisis.

“There’s a chorus of negative headlines coming out about European financials and sovereigns,” said Scott Sherman, an interest-rate strategist in New York at Credit Suisse Group AG, one of 21 primary dealers that trade with the Federal Reserve.

S&P Stance

The European Union’s AAA long-term rating and the rankings of some of the region’s largest banks including BNP Paribas SA, Commerzbank AG and Deutsche Bank AG may be cut by Standard & Poor’s, the company said yesterday, following a similar action this week on 15 of the 17 euro members including Germany.

European leaders begin a two-day summit in Brussels today after the region’s debt crisis spread to Italy last month, pushing yields on the nation’s debt to a euro-era record.

Demand for U.S. debt as a result of Europe’s crisis pushed Treasuries due in 10 years or longer up 21 percent in the past six months, the best performance among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, after accounting for currency changes.

The Fed is replacing $400 billion of shorter maturities in its holdings with longer-term debt to keep rates down and foster growth, in a plan it announced in September.

Fed Operations

The central bank bought $4.617 billion in Treasuries maturing from February 2020 to November 2021 under the program and is scheduled today to sell as much as $8.75 billion of notes maturing in 2012.

U.S. jobless claims dropped by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February, Labor Department figures showed today. The median forecast of 47 economists in a Bloomberg News survey called for a decrease to 395,000. The number of people on unemployment benefit rolls and those getting extended payments also decreased.

“The data in the U.S. doesn’t matter right now,” said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, a primary dealer. “It’s all about what’s going on in Europe.”

The U.S. will auction $32 billion in three-year notes on Dec. 12, $21 billion in 10-year debt the next day and $13 billion in 30-year bonds on Dec. 14, the same as in the previous auctions of similar securities in October, the Treasury said today. The government will also sell $12 billion in five-year Treasury Inflation Protected Securities on Dec. 15, the same amount sold in August.

Trading Volume

About $238 billion of Treasuries changed hands yesterday through ICAP Plc, the world’s largest interdealer broker. The figure is below the average of $294 billion for 2011.

“The reality is people don’t want to put on any big bets,” said David Ader, head of government bond strategy at Stamford, Connecticut-based CRT Capital Group LLC. “There’s too much uncertainty.”

The 10-year yield will rise to 2.73 percent by the end of 2012, according to the average forecast in a Bloomberg News survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.