Treasuries fell, pushing yields to the highest level in three years relative to those of Group-of-Seven nations, before a government report that economists said will show the jobless rate declined in July.
U.S. 10-year securities yielded 37 basis points more than bonds in an index of their G-7 peers, the biggest difference since May 2010, according to data compiled by Bloomberg. Treasury yields jumped yesterday on speculation the U.S. economy is growing fast enough for the Federal Reserve to begin trimming its bond purchases, known as quantitative easing, as soon as its next meeting in September.
“Economic data out of the U.S. so far in the third quarter has been on a firm footing,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “If the jobs data today surprises on the upside, we are likely to see a new high on 10-year yields for this year.”
The benchmark 10-year yield climbed three basis points, or 0.03 percentage point, to 2.73 percent at 6:43 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent note maturing in May 2023 fell 7/32, or $2.19 per $1,000 face amount, to 91 5/8.
The yield, which jumped 13 basis points yesterday, rose to 2.75 percent on July 8, the highest level since August 2011.
Treasuries lost 3.1 percent this year through yesterday, while German bonds dropped 1.3 percent, based on the Bloomberg World Bond Indexes. Stocks in the MSCI All-Country World Index returned 13 percent, including reinvested dividends.
U.S. 10-year yields will be at 2.64 percent by year-end, according to a Bloomberg survey of financial firms with the most recent projections given the heaviest weightings.
The Fed is buying $85 billion of bonds each month to put downward pressure on interest rates, and policy makers are discussing whether the economy has improved enough for them to start reducing the purchases.
U.S. employers hired 185,000 workers last month, after adding 195,000 in June, according to a Bloomberg News survey of 92 economists before the Labor Department report at 8:30 a.m. in Washington. The jobless rate fell to 7.5 percent from 7.6 percent, matching the lowest since 2008, another survey showed.
Private employment, which excludes government agencies, climbed 195,000 after a 202,000 increase in June, economists predicted.
Separate figures today will show gains in incomes, spending and factory orders, according to the surveys.
Reductions in the Fed’s debt-buying program won’t automatically send yields higher, based on what happened in the first two rounds of quantitative easing, according to Akira Takei, head of the international fixed-income department at Mizuho Asset Management Co. in Tokyo.
Ten-year yields declined 1.26 percentage points between the end of the first phase of Fed purchases in March 2010 and the beginning of the second round in November of that year.
Yields slid 1.3 percentage points between the end of the second buying program in June 2011 and the beginning of the Fed’s so-called Operation Twist plan in September the same year.
“The Fed will taper QE not because the economy is booming but because the program has been creating excess liquidity, boosting risk assets too much,” said Takei, who helps oversee the equivalent of $37 billion and whose company’s U.S. affiliate is one of 21 primary dealers that underwrite the U.S. debt. “Ending QE is likely to trigger a correction in risk assets, driving bond yields down.”
Data released since last week on new home sales, durable goods orders, gross domestic product, jobless claims and manufacturing have all pointed to improvement in the economy.
“There is slow and gradual healing in the U.S. economy,” said Tony Crescenzi, a strategist and portfolio manager at Pacific Investment Management Co., which runs the world’s biggest bond fund and is based in Newport Beach, California. A jobs gain of 175,000 or more “would make it highly probable that a tapering decision would be announced in September,” he said in an interview on Bloomberg Television.