Treasuries fell, pushing 10-year note yields up the most in a month, after a private report showed U.S. company hiring increased the most in June since November 2012, fueling bets the economy is gaining momentum.
Ten-year yields rose for a second day after ADP Research Institute’s employment data topped the forecasts of all 47 economists in a Bloomberg survey. Treasury market volatility was at almost the lowest since May 2013 before tomorrow’s U.S. nonfarm payrolls report. Federal Reserve Chair Janet Yellen said in a speech there’s no need to change current monetary policy to address financial-stability concerns.
“Today’s better data and what it may foretell for tomorrow has weighed on Treasuries,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “An improving employment picture is key for economic improvement. If the stronger economic momentum filters through into tomorrow, we could see even higher yields headed into the holiday weekend.”
The yield on the benchmark 10-year note climbed six basis points, or 0.06 percentage point, the most since June 3, to 2.63 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. It was the highest level since June 20. The average for the past decade is 3.41 percent. The price of the 2.5 percent note due in May 2024 sank 17/32, or $5.31 per $1,000 face value, to 98 29/32.
Thirty-year (USGG30YR) bond yields increased six basis points to 3.46 percent and touched 3.47 percent, also the highest level since June 20.
Bank of America Merrill Lynch’s MOVE Index, which measures price swings in Treasuries based on options, reached 52.74 basis points on June 30, the lowest closing level since May 9, 2013. The gauge has dropped from 117.89 on July 5, 2013.
The Securities Industry and Financial Markets Association recommends a close to Treasury trading at 2 p.m. tomorrow and all day July 4 for the U.S. Independence Day holiday.
June’s 281,000-job increase in company hiring followed a 179,000 gain in May, data from the Roseland, New Jersey-based ADP institute showed. The median projection in the Bloomberg survey was 205,000, with a range of 169,000 to 250,000.
“It’s a good piece of data on the employment front, indicating stronger growth,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “Both the employment and inflation numbers are moving closer to the Fed’s goal.”
Economists in a Bloomberg survey forecast the Labor Department will report tomorrow that employers added 215,000 jobs in June, compared with 217,000 in May. It would be the fifth monthly increase of more than 200,000 jobs.
“The economy is getting slowly better, and as a result you are seeing a general move higher in yields,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The bond market is telling you the economy is improving, but low levels of rates mean growth is still slow and inflation will not be a threat. All eyes will be on the jobs report.”
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was little changed today at 2.24 percentage points. The average for the past decade is 2.20.
While the Fed’s target inflation rate is 2 percent, its preferred gauge, which is tied to consumer spending, rose 1.8 percent in May from a year earlier, data showed on June 26. It has stayed below 2 percent since May 2012.
The central bank has kept the benchmark interest-rate target in a range of zero to 0.25 percent since December 2008 and has bought longer-term Treasury debt and mortgage-backed securities to keep borrowing costs low.
“Yellen will be looking for more signs that slack in the labor force is dissipating and that inflation pressures are building before considering raising rates,” said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of 22 primary dealers that trade with the Fed.
Traders see about a 58 percent chance the Fed will increase the rate target to at least 0.5 percent by July next year, up from 43 percent odds at the end of May, fed funds futures show.
Yellen gave the inaugural Michel Camdessus central-banking lecture at the International Monetary Fund in Washington. She said the financial crisis wouldn’t have been prevented or mitigated by “substantially tighter monetary policy” in the mid-2000s. Higher interest rates would have increased unemployment and wouldn’t have closed regulatory gaps, she said.
The Fed chief said broad measures of credit growth don’t suggest excessive debt. Improved capital and liquidity positions at banks “should ensure resilience” against losses, she said.