Treasuries fell for a second day as a rout in European bonds continued to diminish investors’ appetite for relatively higher U.S. yields.
The benchmark yield rose to the highest level in seven weeks while German 10-year yields reached the highest level since January on speculation that gains triggered by European Central Bank bond purchases were overdone. A U.S. report on May 8 is forecast to show stronger jobs growth as the Federal Reserve considers when to increase interest rates.
“With German yields backing up, that’s the impact we’re seeing here,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “Part of what dragged down yields here was that relative-value trade.”
The 10-year note yield rose two basis points, or 0.03 percentage point, to 2.14 percent at 1:49 p.m. New York time. The price of the 2 percent security maturing in February 2025 was 98 25/32, according to Bloomberg Bond Trader prices. The yield reached the highest level since March 13.
Ten-year yields rose 21 basis points last week, nearly matching the 22 basis point move in German bunds of comparable maturity, the most since January 2013.
Treasury market volatility rose to a three-week high of 78.88 on Friday, according to the Bank of America Merrill Lynch bond index. The measure has averaged 84.72 this year, up from 62.04 in 2014.
The U.S. payrolls report is forecast to show the U.S. economy added 228,000 jobs last month after a smaller-than-expected 126,000 increase in March -- the worst result since December 2013.
“The most important thing is to watch is wages, which a lot of people are talking about,” said Dan Mulholland, a trader at Credit Agricole SA in New York. “We think the labor market hasn’t really skipped a beat.”
The Employment Cost Index, a measure of wages and benefits for private-sector employees, climbed 0.7 percent in the first quarter and were up 2.8 percent in the 12 months through March, the biggest gain in more than six years, the Labor Department reported April 30.
The gap between yields on Treasuries maturing in five- and 30-years, known as the yield curve, widened to 1.36 percentage points, the most since December.
“It wouldn’t surprise me to see that curve sell off and steepen,” Mulholland said.
U.S. debt fell last week after data, including the University of Michigan consumer confidence on May 1, showed a rebound in economic sentiment and activity. That followed a series of weak first-quarter economic readings that the Fed blamed on “transitory” factors including brutal winter weather in much of the U.S.
Most economists project the U.S. central bank will wait until at least September before raising rates from near zero, according to the latest Bloomberg survey, after earlier projecting a June liftoff.