Treasuries fell, extending the world’s biggest government bond losses over the past two months, on speculation employment data today will bolster the case for the Federal Reserve to raise interest rates in 2015.
U.S. notes and bonds due in more than a year dropped 0.2 percent in the period, the only loss among 26 debt markets, data compiled by Bloomberg and the European Federation of Financial Analysts Societies show. The world’s biggest economy is recovering from a first-quarter contraction, leading investors to add to bets the Fed will increase borrowing costs.
“Treasuries are building concession in before this deluge of data,” said Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London. “The primary point of focus is going to be payrolls. Most important is average hourly earnings. It’s about the trend rather than the actual level at the moment and what the trend implies for the how much wriggle room the Fed has.”
The U.S. 10-year yield rose two basis points, or 0.02 percentage point, to 2.58 percent at 8:09 a.m. New York time, according to Bloomberg Bond Trader data. The 2.5 percent note due in May 2024 fell 5/32, or $1.56 per $1,000 face amount, to 99 10/32. The rate on 30-year bonds increased three basis points to 3.35 percent.
There is “no value at all” in Treasuries at these levels, said Ostwald, who sees 10-year yields rising to around 2.70 percent and the 30-year rate testing 3.50 percent in the coming weeks. Bloomberg surveys of economists, with the most recent forecasts given the heaviest weightings, predict the 10-year yield will climb to 2.89 percent and the 30-year yield to 3.70 by the end of September.
The U.S. added more than 200,000 jobs for a sixth straight month in July, according to a Bloomberg News survey before the Labor Department issues the monthly employment report.
A payrolls figure above 300,000, predicted by just two of the 88 economists surveyed, would “prompt a test of 2.65 percent” on the 10-year yield, Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets in Edinburgh, wrote in an e-mailed note today.
Average hourly earnings increased 2.2 percent from a year earlier, based on the responses. While the figure would be the highest level this year, it has yet to recover from the recession that began in December 2007 and ended in June 2009. The measure climbed as high as 3.6 percent in 2008.
Personal income and spending levels probably rose in June, while a measure of annual inflation tracked by the Fed fell to 1.7 percent from 1.8 percent, separate surveys show.
Further reports on manufacturing, consumer confidence and construction spending are also due.
U.S. gross domestic product grew at a 4 percent annual rate in the second quarter, after shrinking 2.1 percent from January through March, Commerce Department figures showed this week.
Traders see about 80 percent odds the central bank will raise the target for its benchmark to at least 0.5 percent by September 2015, based on futures contracts. The figure was about 70 percent on July 1. The chance of an increase by the end of this year is about 4 percent.
“Next year will be a bright year for the economy, and that will be bad news for bonds,” said Will Tseng, a bond fund manager in Taipei at Mirae Asset Global Investments Co., which had $58.7 billion in assets as of Dec. 31. “The Fed will hike sometime next year.”
The 10-year note yield may approach 3 percent by Dec. 31, Tseng said, adding that he would consider buying if it does.
From North America to Asia and Europe, bonds of all types delivered their smallest gains last month since March, according to the Bank of America Merrill Lynch Global Broad Market Index, which tracks $43 trillion of securities.
Returns of 0.2 percent added little to the 4.2 percent rally in the first half of the year.
“There’s not a lot of value in bonds,” said Ewen Cameron Watt, the chief investment strategist for BlackRock Investment Institute. “In the fourth quarter of this year, with modest wage increases, we’re going to see a modest inflation risk,” he told reporters yesterday in Sydney.
The institute is part of BlackRock Inc., the world’s largest money manager with $4.32 trillion in assets at the end of last year.