Treasuries fell for a second day before a private report forecast to show that U.S. companies expanding hiring last month, adding to speculation investors will refocus on the strength of the economy.
Treasury yields jumped yesterday as easing tensions in Ukraine reduced demand for haven assets. The Institute for Supply Management’s non-manufacturing index fell last month, while an ADP Research Institute report will show slower growth in businesses’ hiring, according to separate Bloomberg surveys of analysts. The Labor Department is due to release February’s non-farm payrolls data on March 7.
“In the longer term, the U.S. economy is heading in the right direction,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, the Netherlands. “The markets are somewhat relieved about Ukraine at the moment. As long as there’s no major development there, we will be watching the payrolls on Friday and today is the first major clue.”
The 10-year note yield rose one basis point, or 0.01 percentage point, to 2.71 percent as of 7:43 a.m. New York time after climbing 10 basis points, or 0.1 percentage point, yesterday, according to Bloomberg Bond Trader prices. The price of the 2.75 percent note due February 2024 fell 4/32, or $1.25 per $1,000 face value, to 100 10/32. Yesterday’s jump in 10-year yields was the biggest on a closing basis since Nov. 8.
The ISM’s non-manufacturing index dropped to 53.5 in February from 54 the month before, the Tempe, Arizona-based group will say today. U.S. businesses increased jobs by 155,000 last month, down from a gain of 175,000 in January, according to the median projection of economists surveyed by Bloomberg before the ADP report today. That would be the smallest increase since a gain of 151,000 in August.
The Bloomberg U.S. Treasury Bond Index (BUSY) has gained 1.8 percent since the end of 2013 as investors attempt to ascertain whether the recent weakness in economic data was because of unusually harsh weather and not a more generalized slowdown that could prompt the Federal Reserve to slow its tapering of monetary stimulus. German bonds have gained 2.4 percent.
Fed Chair Janet Yellen reiterated on Feb. 27 that the central bank is likely to keep curtailing its stimulus. The Fed said on Dec. 18 it would trim its monthly bond purchases to $75 billion from $85 billion, before cutting by another $10 billion in January. The purchases are designed to hold down long-term borrowing costs and spur economic growth.
“Unseasonably cold weather has played some role,” she said in response to a question that day from the Senate Banking Committee on signs that economic data was softening.
Employment grew by 150,000 last month, up from 113,000 in January, Labor Department figures will show on March 7, according to the median forecast of 85 economists in a Bloomberg survey. The December and January numbers were less than analysts predicted in surveys.
Treasuries remained supported even as U.S. and Russia diplomats prepared to meet to reduce tensions a day after Russian President Vladimir Putin said he saw no immediate need to invade Ukraine, while the U.S. threatened sanctions. Secretary of State John Kerry is scheduled to meet Russian Foreign Minister Sergei Lavrov in Paris. The 10-year yield touched 2.59 percent on March 3, the lowest since Feb. 4.
“There’s still a risk-aversion premium in Treasuries,” said Marc Fovinci, head of fixed income in Portland, Oregon, at Ferguson Wellman Capital Management Inc., which has $3.5 billion in assets. “If the Ukraine situation de-escalates further, we should see higher rates, and that’s what we’re expecting.”