Treasuries fell for a second day after Greece’s Prime Minister Alexis Tsipras offered to accept terms required in return for a financial bailout, subject to certain conditions.
U.S. 10-year notes, traditionally sought for their safety in times of market turmoil, dropped amid optimism a deal could be forged. Greece missed a 1.5 billion-euro ($1.7 billion) repayment to the International Monetary Fund on Tuesday and is preparing for a referendum on July 5 on whether to accept the austerity measures proposed by creditors.
“The move in Treasuries is entirely driven by headlines doing the rounds that the Greeks have given ground,” said Lyn Graham-Taylor, a rates strategist at Rabobank International in London. “It is just more negotiations, Tsipras still wants more changes and hasn’t accepted all the proposals. Regardless of that, markets have taken it positively.”
The benchmark Treasury 10-year yield rose five basis points, or 0.05 percentage point, to 2.41 percent at 8:05 a.m. New York time, according to Bloomberg Bond Trader data. The 2.125 percent note due in May 2025 fell 15/32, or $4.69 per $1,000 face amount, to 97 17/32.
The Bloomberg U.S. Treasury Bond Index declined 1.96 percent in the last quarter, its first loss since the last three months of 2013. It fell 0.95 percent in June, the worst monthly performance since February.
“The uncertainty around Greece is still so huge at the moment,” said John Davies, a U.S. interest-rate strategist at Standard Chartered Bank in London. “You still can’t quite rule out the possibility of a last-minute deal but you can’t rule out the possibility of a more disorderly outcome.”
Earlier in June, Federal Reserve chair Janet Yellen had reiterated monetary policy will be driven by economic data. She acknowledged 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.
“Domestically, for the last six to 12 months, Treasury markets have focused on when the Fed will be hiking rates,” Davies said. “The U.S. economy seems to be recovering. That has been in a tug-of-war with various international issues, like in recent weeks the intensification of the Greek crisis.”
A report from the Institute of Supply Managers due Wednesday will show manufacturing accelerated a second month in June, while an ADP report on employment change will show an increase of 218,000 last month, compared with 201,000 in May, according to economists surveyed by Bloomberg.
Payrolls data released by the Labor Department on Thursday will show employers added more than 200,000 jobs for the 15th time in 16 months in June, according to the median estimate in a Bloomberg survey of analysts.
“It has been noted by the Fed that Greece is an issue even for them raising rates,” Rabobank’s Graham-Taylor said. If optimism surrounding Greece lasts “in combination with a positive payrolls number, we could see quite a decent selloff in Treasuries tomorrow.”
Graham-Taylor said a move in yields through 2.5 percent would be “significant” and could be “on the cards” this week.
(An earlier version of this story was corrected to amend the price of the 10-year note in the fourth paragraph.)