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Treasury Yields at One-Year High Relative to Major Peers on Jobs

Treasury yields were the highest in 12 months relative to their major peers before data today that economists say will point to improvement in the U.S. job market.

Government bonds in an index of Group-of-Seven debt yielded 10 basis points more than U.S. securities, according to data compiled by Bank of America Merrill Lynch. The difference was the least since March last year. Treasury 10-year yields climbed the most in three weeks yesterday after data from ADP Research Institute showed companies added more jobs last month than economists forecast.

“I’m bearish on Treasuries,” said Kei Katayama, who buys non-yen debt in Tokyo for Daiwa SB Investments Ltd., which manages the equivalent of $53 billion. “I can’t really expect weak job numbers in this economic environment that cause big drops in Treasury yields.”

The yield on the benchmark 10-year note slid one basis point, or 0.01 percentage point, to 1.93 percent as of 6:46 a.m. in London. It climbed four basis points, or 0.04 percentage point, yesterday, the biggest gain since Feb. 13. The price of the 2 percent security due February 2023 rose 3/32 to 100 21/32, according to Bloomberg Bond Trader data.

The Labor Department will probably say today that the number of people continuing to receive jobless benefits was 3.12 million in the week ended Feb. 23, according to the median forecast of economists surveyed by Bloomberg News. That compares with 3.07 million in the week prior, the least since June 2008. The figures don’t include Americans receiving extended unemployment benefits under federal programs.

U.S. Jobs

ADP said yesterday U.S. companies added 198,000 workers last month, exceeding the 170,000 estimated by economists. The Dow Jones Industrial Average rose as much as 0.5 percent yesterday to top the record high set the previous day.

A separate report from the Labor Department tomorrow may show nonfarm payrolls gained by 163,000 jobs last month, economists forecast. Payrolls rose 157,000 positions in January.

“The broader message is that, after a worrying slowdown in the middle of last year, labor market conditions have improved markedly” Paul Ashworth, the chief U.S. economist at Capital Economics Ltd. in Toronto., wrote in a research note dated today. “The ADP survey suggests some upside risk to our forecast that non-farm payrolls increased by 175,000 last month.”

Ten-year yields may climb to 2.51 percent by the end of March next year, the weighted-average estimate of analysts surveyed by Bloomberg shows. Should their projections turn out to be correct, investors who buy the securities today would lose 2.5 percent during the period, according to Bloomberg data.

Quantitative Easing

The Treasury will today announce the amount of debt that it auctions next week. The government is likely to sell $32 billion of 3-year notes on March 12, $21 billion of 10-year debt the next day and $13 billion of 30-year securities on March 14, according to projections from Wrightson ICAP LLC.

The Federal Reserve will buy as much as $3.75 billion of government debt today maturing in December 2018 to February 2020. The central bank purchases $85 billion in Treasury and mortgage debt a month under so-called quantitative easing.

“The bond market is in a bubble,” said Daiwa SB’s Katayama. “Even so, the bubble seems very likely to continue. We can’t underestimate the effects of quantitative easing.”

Dallas Fed President Richard Fisher said yesterday that monetary policy alone can’t fuel economic growth.

Tug of War

“There is a tug of war between monetary policy and expectations of an economic recovery,” said Masato Yanagiya, the head of currency and money trading in New York at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “Stocks are in a high price range, while 10-year Treasury yields are below 2 percent, showing the strong influence of quantitative easing.”

In Japan, the current 20-year bond yield gained four basis points to 1.605 percent, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 10-year yield was little changed at 0.675 percent.

The Bank of Japan board voted down a proposal by member Sayuri Shirai to start open-ended asset purchases immediately, the central bank said today when concluding a two-day policy meeting. It was the last gathering presided over by BOJ Governor Masaaki Shirakawa, who is due to step down this month.

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