Treasuries declined for a second day, with 10-year yields approaching the highest since August 2011, before a government report economists said will show U.S. employers increased hiring in June and the jobless rate fell.
U.S. 10-year securities yielded 21 basis points more than bonds in an index of their Group-of-Seven peers, data compiled by Bloomberg based on closing prices show. The difference was the most since February 2011, having widened on speculation the American economy is growing fast enough for the Federal Reserve to reduce its bond purchases this year. The U.S. bond market was closed yesterday for a public holiday.
“It’s kind of a wait-and-see mode right now with an absence of buyers that’s cheapening the market,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “Today’s number is obviously crucial. Going into it, I think people are concerned that a better number would revisit higher yields. That’s another reason the Treasury market is a little bit cheaper.”
The benchmark 10-year yield rose five basis points, or 0.05 percentage point, to 2.56 percent at 7 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2023 fell 14/32, or $4.38 per $1,000 face amount, to 93. The rate climbed to 2.66 percent on June 24, the highest since Aug. 2, 2011.
Job gains and a recovery in housing are improving Americans’ finances and bolstering speculation the economy will gain momentum even after the payroll tax increased and government agencies began to cut spending.
U.S. employers boosted payrolls by 165,000 last month, after adding 175,000 workers in May, according to a Bloomberg News survey before the Labor Department report at 8:30 a.m. in Washington. The unemployment rate fell to 7.5 percent, matching a four-year low, from 7.6 percent, a separate survey predicted.
The jobless rate may drop to 7.4 percent which would “likely wreak some more havoc on the Treasury market,” according to Kit Juckes, a global strategist at Societe Generale SA in London.
Fed Chairman Ben S. Bernanke said on June 19 the central bank may start to reduce its bond purchases this year if the economy achieves the sustainable growth that the Fed has sought since the recession ended in 2009.
Bernanke’s comment sent bonds tumbling around the world. The Bloomberg Global Developed Sovereign Bond Index (BGSV) dropped 2.2 percent the next day, the steepest decline based on data going back to January 2010. The index is down 6.4 percent this year, while the Bloomberg U.S. Treasury Bond Index (BUSY) fell 2.9 percent.
The MSCI All-Country World Index of shares returned 7.3 percent in the period including reinvested dividends.
“Yields won’t go below 2 percent because everybody knows the economy is recovering,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “The economy is so far, so good.”
The Fed is buying $85 billion of Treasuries and mortgage-backed securities each month to support the economy by putting downward pressure on borrowing costs.
Investors demanded 87 basis points of extra yield to own 10-year bonds in the U.S. instead of Germany, up from 58 basis points a month ago.
Park Sungjin, head of asset management in Seoul at Meritz Securities Co., which oversees $7 billion, is betting Treasuries will fall because of the risk of reduced Fed bond purchases.
“It’s very clear,” he said. “U.S. economic data have been very good.”