Treasuries dropped, trimming gains after yesterday’s biggest rally this year, as economists said a report from ADP Employer Services today will show U.S. company hiring accelerated.
Government securities also slid as Societe Generale SA joined firms saying they would participate in Greece’s debt swap. Ten-year yields shrank yesterday to almost negative 1 percent when accounting for inflation, damping demand from investors who say bond rates need to rise as the economy grows.
“We’ve got the ADP report today that will be fairly pivotal,” said Charles Diebel, head of market strategy at Lloyds Banking Group Plc in London. “The consensus out there is most people perceive yields should go higher rather than lower.”
Yields on 10-year notes rose two basis points, or 0.02 percentage point, to 1.96 percent at 6:56 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities due in February 2022 slid 5/32, or $1.56 per $1,000 face amount, to 100 10/32.
The 10-year note yields decreased seven basis points yesterday, the most since Dec. 28. The yields will climb to 2.53 percent by year-end, according to the average projection of banks and securities companies, with the most recent forecasts given the heaviest weightings.
ADP will say U.S. companies added 215,000 workers in February, compared with 170,000 in the previous month, according the median forecast in a Bloomberg News survey.
Employers added more than 200,000 jobs for a third month, according to the median forecast in a separate Bloomberg News survey before the Labor Department’s March 9 report.
“Treasuries are very expensive,” said Tsutomu Komiya, who helps oversee the equivalent of $114.8 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage by market value. “The U.S. economy is improving. The labor market is warming.”
U.S government securities rallied yesterday as a report showed Europe’s economy shrank and investors weighed Greece’s chances of persuading creditors to agree to a bond swap under its private-sector-involvement plan.
Bank of America Merrill Lynch’s MOVE (MOVE) index, which measures price swings based on options, rose yesterday for the first time in three days, increasing to 75.8
About $239 billion of Treasuries (ICPTVOL) changed hands yesterday through ICAP Plc, the world’s largest interdealer broker. The five-year average is $269 billion.
Europe’s gross domestic product shrank 0.3 percent in the fourth quarter from the previous three months, according to the European Union’s statistics office.
German factory orders, adjusted for seasonal swings and inflation, fell 2.7 percent in January, the Economy Ministry in Berlin said today. The median estimate in a Bloomberg News survey of 37 economists called for a 0.6 percent increase.
“Our yield forecasts suggest that we’re pretty much stabilized around these current levels,” said Peter Schaffrik, the head of European interest-rate strategy at Royal Bank of Canada in London, referring to the benchmark 10-year note yield. “Macro expectations are not significantly stronger than where we are at the moment, so we forecast 1.85 percent and 1.95 percent for March and June respectively.”
The Standard & Poor’s 500 Index slid 1.5 percent yesterday, the most since December. Futures rose 0.5 percent today after Societe Generale, France’s second-biggest bank, Assicurazioni Generali SpA (G) and UniCredit SpA (UCG) joined companies saying they would participate in the Greece debt plan as the country threatened to compel holdouts to take part.
The Federal Reserve is scheduled to buy as much as $2.25 billion of U.S. debt due from February 2036 to February 2042 today, according to the New York Fed’s website. The central bank is in the process of swapping $400 billion of shorter-maturity Treasuries in its holdings with longer-term securities to cap borrowing costs.
Ten-year yields have been within 21 basis points of 2 percent since the start of November. Policy makers pledged in January to keep the benchmark interest rate close to zero until at least late 2014.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt known as the break-even rate, was 2.17 percentage points, the lowest level since Feb. 6. The average over the past decade is 2.14 percentage points.
Treasuries also dropped before the U.S. announces tomorrow the size of three auctions of coupon-bearing debt next week starting March 12. The government will probably sell $32 billion of three-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
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