Treasury 10-Year Yield Reaches Four-Month High on Economy, ECB

Treasury 10-year note yields reached the highest since July as reports showed the U.S. economy strengthening and concern eased that the European debt crisis is spreading reduced the appeal of U.S. securities as a haven.

The yield on benchmark note rose for the first time in four days after an industry report showed the U.S. added more jobs than forecast in November, signaling a labor market recovery is under way. The Federal Reserve said the economy gained strength in 10 of its 12 regions as hiring improved, manufacturing expanded and retailers anticipated a stronger holiday shopping season. U.S. stocks rallied, sending benchmark indexes toward their biggest gains in three months.

“Stocks are up big, peripheral bond markets are doing better and people are feeling more optimistic that the euro is not coming unraveled, which is weighing on the bond market,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee. “The news and data show there are moderate reasons for optimism as we have gone from slow growth to somewhat faster growth.”

The benchmark 10-year yield rose 17 basis points to 2.97 percent at 5:02 p.m. in New York, according to BC Cantor Market Data, touching the highest since July 30. The yield fell to 2.75 percent yesterday, the lowest level since Nov. 23. The 2.625 percent security due in November 2020 fell 1 13/32, or $14.06 per $1,000 face amount, to 97 3/32.

Longer Bonds

The 30-year bond yield climbed 13 basis points to 4.24 percent. It fell to 4.05 percent yesterday, the lowest level since Nov. 5. The Standard & Poor’s 500 Index rallied the most since Sept. 1 on a closing basis, adding 2.2 percent.

The Fed’s Beige Book report reflected information collected on or before Nov. 19 and summarized by the Cleveland Fed. The survey will be considered by Federal Open Market Committee policy makers before their next meeting on Dec. 14, when they will review their asset purchase program.

Goldman Sachs Group Inc. increased its forecast for U.S. gross domestic product growth next year to 2.7 percent from 2 percent. The U.S. economy will expand 3.6 percent in 2012, according to a report sent to Goldman Sachs clients today.

The Fed bought $8.2 billion of Treasuries with maturities from June 2016 and November 2017 as part of an asset-purchase program aimed at lowering borrowing costs and stimulating economic growth. The central bank is buying Treasuries every day this week.

Euro View

ECB President Jean-Claude Trichet yesterday said the central bank’s bond-buying program is “ongoing” and “we will see what we decide,” refusing to rule out an expansion of purchases. His remarks helped lift the euro for the first time in four days.

The ECB’s Governing Council will meet tomorrow amid speculation it will again delay its exit from emergency liquidity measures. All 52 economists surveyed by Bloomberg News expect the central bank to leave its benchmark interest rate unchanged at 1 percent.

Companies in the U.S. added 93,000 workers to payrolls in November, according to figures from ADP Employer Services.

The ADP number was forecast to show a gain of 70,000 jobs, according to the median estimate of 40 economists surveyed by Bloomberg News. Projections ranged from gains of 40,000 to 125,000.

Labor Analysis

“The lack of labor market participation had kept the market from buying into the sustainability of the recovery, but we are now seeing signs that the labor market is turning to the upside,”said Michael Pond, co-head of interest-rate strategy in New York at Barclays Plc, one of 18 primary dealers that trade with the Fed. “The nonfarm payrolls report will give us more direction on where employment is going.”

Employment in the U.S. rose in November for the second month in a row, with payrolls rising 145,000 a Labor Department report will show December 3, according to a Bloomberg News survey of 84 economists.

Ten-year rates will rise to 3.23 percent by the end of 2011, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. Investors who bought today would lose about 0.2 percent after accounting for interest payments, data compiled by Bloomberg show.

Factory Patterns

The Institute for Supply Management’s factory index fell to 56.6 in November from 56.9 a month earlier, the Tempe, Arizona- based group said today. Readings greater than 50 signal growth and the index has been above 50 for 16 consecutive months,

U.S. government securities handed investors a 0.7 percent loss last month, the most since March based on Bank of America Merrill Lynch indexes, as the Fed embarked on a plan to pump $600 billion into the banking system.

Fed Vice Chairman Janet Yellen said the U.S. must address its budget deficit to protect the nation’s economy from risks including a slowdown in growth.

“Charting a sensible course for the federal budget is an essential but formidable task for U.S. policy makers,” Yellen, 64, said in a speech in New York today. “If current policy settings are maintained, the budget will be on an unsustainable path.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE