Haven demand sparked by the crisis in Greece wasn’t enough to prevent Treasuries from their first quarterly loss since 2013 with the Federal Reserve poised to raise interest rates this year.
Treasuries fell for a third month as a rebound in the world’s biggest economy buoys prospects for the Fed to increase borrowing costs as soon as September. U.S. sovereign securities declined Tuesday even as German Chancellor Angela Merkel dismissed a bid for aid by Greece hours before its bailout expires.
“The market is taking the Fed more seriously than they did even six months ago,” said Christopher Low, chief economist in New York at FTN Financial. “There’s no need to find safe harbor in Treasuries. It doesn’t look like there are huge exposures that are going to cause market fractures if Greece exits the euro.”
The benchmark Treasury 10-year yield rose three basis points, or 0.03 percentage point, to 2.35 percent as of 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The 2.125 percent note due in May 2025 fell 1/4, or $2.50 per $1,000 face amount, to 98.
The yield slid 15 basis points in New York on Monday, the biggest one-day decline since October. It rose 23 basis points for the month.
The Bloomberg U.S. Treasury Bond Index declined 1.8 percent this quarter through Monday, in its first quarterly loss since the last three months of 2013. It fell 0.8 percent in June through Monday, the worst monthly performance since February.
Consumer confidence rose for a second month in June to 101.4, the Conference Board reported Tuesday in New York, compared with a median forecast of 94.6 in a Bloomberg survey of economists.
“Most people appreciate that the U.S. economic data is very good,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA. “Had Greece been put on the sidelines, we may have had a hike in June.”
As Treasuries dropped this quarter, market volatility has jumped since Greek Prime Minister Alexis Tsipras called a referendum on austerity measures demanded by creditors. The Bank of America Merrill Lynch MOVE Index, which measures price swings based on options, jumped to 92.26 Tuesday, the highest since February.
Payrolls data released by the Labor Department on July 2 will show employers added more than 200,000 jobs for the 15th time in 16 months in June, according to a Bloomberg survey of analysts.
“The most significant thing might be this week’s” jobs report, said Edward Acton, a U.S. government-bond strategist at RBS Securities in Stamford, Connecticut, one of 22 primary dealers that trade with the Fed. “If we do get a rock-star report, the market might not feel it then, but if the Greece situation is resolved you’ll get this massive shock.”
Greece is on course to withhold a $1.7 billion payment to the International Monetary Fund due Tuesday. German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece would stay in the euro for the time being if Greek voters reject the austerity deal.
Earlier in June, Fed Chair Janet Yellen reiterated the Fed’s decision on when to raise borrowing costs for the first time since 2006 would depend primarily on U.S. economic data, while acknowledging there could be spillover to the U.S. if there was no agreement between Greece and its creditors.
“The uncertainty about what’s going to happen creates the flight to quality,” which helps Treasuries, said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc., speaking about Greece.
Bloomberg’s U.S. economic surprise index, which measures whether data are above or below analyst estimates, rose to minus 0.46 on Monday, the highest close since Feb. 27.
Fed funds futures show there’s a 28 percent chance the central bank will increase its benchmark rate from near zero in September, down from 38 percent on June 26, and a 66 percent chance by December, down from 73 percent, according to data compiled by Bloomberg.