Treasuries fell for a second day after Greece’s Prime Minister Alexis Tsipras offered to accept certain terms needed for a financial bailout, adding to optimism a deal may be forged.
Greece is preparing for a July 5 referendum on whether to accept austerity measures proposed by creditors after it missed a repayment to the International Monetary Fund on Tuesday. U.S. 10-year notes also fell after reports showed manufacturing expanded and employers added more jobs than forecast in June, reinforcing the Federal Reserve’s case to raise interest rates this year as investors await a widely watched labor-market gauge to be released Thursday.
“There have been numerous headlines vacillating between Armageddon and solutions,” Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “What’s driving the price action is some optimism about Greece. There’s a slight upward bias to yields from here.”
The benchmark Treasury 10-year yield rose seven basis points, or 0.07 percentage point, to 2.42 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The 2.125 percent note due in May 2025 fell 19/32, or $5.94 per $1,000 face amount, to 97 3/8. The yield touched 2.44 percent, the highest level since June 26.
The Bloomberg U.S. Treasury Bond Index declined 2 percent in the last quarter, its first loss since the last three months of 2013. It fell 1 percent in June, the worst monthly performance since February.
“Lost in the Greek headlines is the reality that the U.S. economy is doing quite well in the second quarter,” said Dan Greenhaus, chief global strategist in New York at BTIG LLC.
Manufacturing grew in June at the fastest pace in five months as the Institute for Supply Management’s factory index rose to 53.5 from 52.8 in May, the Tempe, Arizona-based group’s report showed. Readings above 50 indicate expansion. The figure was in line with the Bloomberg survey median forecast of 53.2.
U.S. firms added 237,000 jobs last month, according to a private report from payroll services firm ADP, compared with a forecast for 218,000 among economists surveyed by Bloomberg.
A report by the Labor Department Thursday will show employers added more than 200,000 jobs for the 15th time in 16 months in June, according to the Bloomberg survey median estimate.
“The employment report could show continued strength in the labor market,” Pollack said. The Fed wants to raise rates and September looks most likely, he said.
Fed funds futures show there’s a 35 percent chance the central bank will increase its benchmark rate from near zero in September, up from 28 percent Tuesday, and a 72 percent chance by December, up from 66 percent, according to data compiled by Bloomberg.
In June, Fed Chair Janet Yellen reiterated that U.S. monetary policy will be driven by economic data. She said if an agreement on Greece’s debt wasn’t reached “there would undoubtedly be spillovers to the United States” that would affect the Fed’s outlook as well.
German Chancellor Angela Merkel refused to engage with Greece until after the referendum called by Tsipras, who encouraged voters to reject proposed austerity measures.