Treasurys headed for their biggest monthly gain since December 2008 as investors ignored the first-ever credit rating downgrade of the U.S. and sought refuge in the safest securities amid signs of slowing global growth.

U.S. 10-year notes fluctuated today as stocks rose for a fourth day after a private report showed employers added jobs in August, adding to speculation the recovery may not lose momentum. Minutes of the Federal Reserve’s Aug. 9 meeting released yesterday showed policy makers will debate additional stimulus options at its September gathering.

“The world continues to want safety, given the numerous uncertainties at home and abroad, with the economy weakening and the Fed on hold even longer,” said Justin Lederer, an interest- rate strategist at the primary dealer Cantor Fitzgerald LP in New York. “The economic data and the Federal Open Market Committee are what to watch, as well as Europe, to give us some direction.”

The yield on the 10-year note rose two basis points to 2.20 percent at 2:45 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities maturing in August 2021 fell 6/32, or $1.88 per $1,000 face amount, to 99 11/32.

Monthly Pattern

The 10-year note yield is down 60 basis points this month, the most since a 71 basis point drop in December 2008. New York- based Standard & Poor’s stripped the U.S. of its top rank on Aug. 5, saying Washington politics were making the country less creditworthy. The yield slid on Aug. 18 to a record low 1.97 percent.

The S&P 500 Index gained as much as 1.5 percent, reaching the highest level since Aug. 4.

“With slightly better data and equities rising, Treasurys don’t have a big reason to rally,” said Christian Cooper, head of U.S. dollar-derivatives trading in New York at Jefferies & Co., one of the 20 primary dealers that trade with the Fed. “We had marginally positive data, which removes some of the uncertainty around payrolls. There is a lot of index matching and position squaring into month end driving the market.”

Some investors purchased longer-term debt to increase the duration of their portfolios to match benchmarks at the end of the month, such as the Barclays U.S. Treasury Index. Duration measures how sensitive a bond’s price is to changes in yield.

Barclays Index

The Barclays index will extend by 0.13 year at the end of August, compared with a 12-month average of 0.09 year, according to the firm.

Government bonds have returned 3.05 percent in August, the most since the depths of the financial crisis in December 2008, according to a Bank of America Merrill Lynch index. U.S. government debt has returned 7.347 percent this year, outperforming the 3.56 percent drop in the Standard & Poor’s 500 Index.

The monthly rally comes as bond investors have reduced their expectations for inflation as breakeven rates on Treasury Inflation-Protected Securities, or TIPS, are hovering near the lowest since October 2010. The breakeven inflation rate, calculated from yield differences on 10-year Treasury notes and inflation-indexed U.S. government bonds of similar maturity, has fallen to 2 percent from a high this year of 2.65 percent reached on April 11.

Price Swings

Volatility in Treasurys trading has picked up. Merrill Lynch & Co.’s MOVE index, which measure price swings in Treasurys based on prices of over-the-counter options maturing in two to 30 years, has averaged 99 basis points this month, reaching as much as 118, compared with 90 this year.

Treasurys rallied yesterday as minutes of the Fed’s most recent meeting indicated that a few policy makers favored more aggressive action to stimulate the economy and cut unemployment.

The report bolstered bets policy makers will consider further steps to bolster the economy when they convene on Sept. 20 for a two-day meeting that was originally scheduled to last a day.

“It not going to be long before people begin to count down days until the next Fed meeting, wondering if we do get more from the Fed,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, a primary dealer.

Dallas Fed President Richard Fisher joined Charles Plosser of Philadelphia and Narayana Kocherlakota from Minneapolis as part of the three regional bank presidents to dissent at the Fed’s meeting this month, posing the most opposition on the FOMC in almost 19 years. All three preferred to maintain a commitment to keep rates low for an unspecified “extended period.”

‘Additional Accommodation’

At the same time “a few members felt that recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation,” according to the minutes.

“The Fed made a historic policy move by committing to leave the fed funds Rate near zero for ‘at least’ two years, and the doves wanted more,” John Briggs, a U.S. government bond strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, a primary dealer. “It’s no wonder the markets will be eagerly awaiting the September two day meeting, using any data between now and then to increase or reduce the odds of stimulus being announced.”

Jobs Data

Companies in the U.S. added 91,000 workers to payrolls in August, according to data from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000.

The Labor Department report is forecast to show the U.S. added 70,000 jobs, according to 80 economists in a separate survey, compared with 117,000 the previous month. The unemployment rate is forecast to remain at 9.1 percent from the previous month.

“We’ve had a softening of economic data this month that, along with increasing expectations for some action from the Fed, has been a boon to Treasurys,” said Michael Cloherty, head of U.S. rates strategy for fixed income and currencies at the primary dealer Royal Bank of Canada in New York. “You will need to see more from the Fed and continued stagnancy in the economy to justify the rally going forward.”

During the previous six reports, ADP’s initial figure was closest to the Labor Department’s first estimate of private payrolls in February, when it understated the gain in jobs by 5,000. The estimate was least accurate in June, when it overestimated the increase in employment by 100,000.

Orders placed with U.S. factories rose in July by the most in four months, boosted by demand for motor vehicles and aircraft that more than made up for a decrease in business equipment, Commerce Department figures showed today in Washington.

“Factory order increased more than anticipated and equities are slightly better, which is slightly bearish for Treasurys,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Given the macroeconomic landscape 10 year yields at 2.25 are not outside of the realm of expectations as the market gets used to this lower yield range.”