Treasury 10-year note yields rose the most in three weeks after ADP Research Institute said companies added more jobs than forecast last month, spurring bets U.S. nonfarm labor data will show stronger hiring.
U.S. government securities fell for a third day as the Federal Reserve’s Beige Book business survey said the economy expanded at a modest to moderate pace across most of the country. Fed Chairman Ben S. Bernanke and Vice Chairman Janet Yellen both said over the past two weeks the central bank should maintain stimulus efforts. The central bank bought $1.46 billion of Treasuries today in a program to support the economy.
“It is a reminder that maybe the labor market is improving a little bit,” Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York, said of the ADP jobs data. “That will push yields higher. That’s an important component of economic growth.”
Ten-year note yields increased four basis points, or 0.04 percentage point, the biggest intraday jump since Feb. 13, to 1.94 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data. They touched the highest level since Feb. 25. The price of the 2 percent security due in February 2023 dropped 11/32, or $3.44 per $1,000 face amount, to 100 18/32.
The 10-year yield has traded between 1.83 percent and 1.94 percent since Feb. 26. A day earlier, it dropped as much as 11 basis points, the most since November, from 2 percent as polls showed Italy might be left with a hung parliament after inconclusive elections, spurring speculation Europe’s debt crisis would worsen.
Thirty-year yields rose five basis points to 3.15 percent.
Trading volume increased to $226 billion of Treasuries, after falling on March 4 to $183 billion, the lowest level this year, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. Average daily volume over the past 12 months was $247 billion.
The Dow Jones Industrial Average (INDU) was up 0.3 percent after gaining 0.5 percent earlier and topping yesterday’s record high.
Treasuries dropped after Roseland, New Jersey-based ADP Research said U.S. companies added 198,000 workers. The increase followed a gain in the previous month that was revised to 215,000 from the 192,000 originally reported. The forecast in a Bloomberg survey was for 170,000 in February.
“Because we’re in such a tight range, any sort of blip is cause for notice,” said Michael Lorizio, senior trader at Manulife Asset Management in Boston. “Bernanke and Yellen both have gone out of their way to show they’re not going to be in a rush to tighten policy.”
The Fed purchased Treasuries today due from February 2036 through August 2042. It will buy as much as $3.75 billion of the debt tomorrow in the last of four operations this week, according to a schedule on the New York Fed’s website. The acquisitions are part of its purchases of $85 billion a month of Treasury and mortgage debt under the quantitative easing strategy to support the economy.
The central bank’s Beige Book cited rising consumer demand for homes and autos.
“The majority of districts reported modest improvements in labor market conditions, although hiring plans were limited in several districts,” the central bank said in the survey, which is based on reports from its 12 regional banks.
The anecdotal snapshot of the economy helps the Federal Open Market Committee evaluate whether employment shows signs of the substantial improvement it says would warrant shrinking or halting bond purchases. The committee next meets March 19-20.
“I don’t think that growth is anywhere near strong enough for the Fed to consider pulling back on its accommodation,” said Thomas Simons, a government-debt economist in New York at Jefferies Group Inc., one of 21 primary dealers that trade with the Fed. “Yields will drift” because of the pace of economic growth, he said.
Bonds pared losses earlier after Commerce Department data showed U.S. factory orders fell 2 percent in January from December, when they increased a revised 1.3 percent. Economists in a Bloomberg survey projected a 2.2 percent decline.
The Labor Department’s employment report this week will show overall U.S. nonfarm payrolls rose by 163,000 jobs last month, according to the median forecast of economists surveyed by Bloomberg. Payrolls gained 157,000 positions in January.
Yellen said March 4 the central bank should continue its monthly bond buying while tracking the costs of the program. Bernanke in congressional testimony last week defended the Fed’s bond purchases, saying the benefits of reducing borrowing costs and fueling growth outweigh any potential drawbacks.
“The lure of the Fed buying continues to hold the market in better than one would think, given the extent of the good numbers we’ve seen over the last three weeks,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.
Philadelphia Fed Bank President Charles Plosser said today the central bank should slow the pace of its bond buying because the potential costs from more stimulus outweigh the benefits.
“We should begin to taper our asset purchases with an aim of ending them before year-end,” Plosser said today in a speech in Lancaster, Pennsylvania. “With interest rates already extremely low and the Fed’s balance sheet large and growing, monetary policy is posing risks to the economy in terms of financial stability, market functioning and price stability.”
The Fed has kept its benchmark target for overnight lending in a range of zero to 0.25 percent since 2008.
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