Treasuries fell for the first time in three days on speculation the monthly U.S. payroll report this week will back the case for the Federal Reserve to raise interest rates as soon as September.
U.S. government securities trimmed gains after benchmark 10-year notes rallied by the most in almost four weeks on Friday. Employers added 225,000 workers in July, after hiring 223,000 in June, according to the median forecast of economists in a Bloomberg survey before the Labor Department releases its report on Aug. 7.
“There’s every indication that it will be around 225,000 again, which keeps the Fed on track to hike in September,” said Ali Jalai, who trades Treasuries at Bank of Nova Scotia in Singapore.
The U.S. 10-year note yield rose two basis points, or 0.02 percentage point, to 2.20 percent at 6:47 a.m. New York time, according to Bloomberg Bond Trader data. The 2.125 percent security due in May 2025 dropped 5/32, or $1.56 per $1,000 face amount, to 99 11/32.
Fed Chair Janet Yellen said in July she expected the central bank to raise its benchmark rate this year, while emphasizing the pace of increases will probably be gradual.
Policy makers expect inflation to accelerate gradually toward their 2 percent target, the central bank said in a statement at its July 28-29 meeting.
Data due Monday will confirm a gauge of U.S. manufacturing output increased to 53.8 last month from 53.6 in June, according to the median forecast in a Bloomberg survey of economists. A reading above 50 indicates expansion.
A separate report will show the Fed’s preferred inflation gauge rose 0.2 percent in June from the year before, unchanged from the rate in May, according to the median estimate of analysts in a Bloomberg survey. The index has been below the central bank’s 2 percent target for three years.
Officials have kept their benchmark interest rate, the target for overnight loans between banks, in a range of zero to 0.25 percent since December 2008.
There’s about a 40 percent chance the Fed will raise rates at its September meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff. The likelihood of a rate increase at or before the December meeting is about 70 percent.
Fed rate increases will drive Treasury prices down, said Will Tseng, a fund manager in Taipei for Mirae Asset Global Investments Co., which has $75.8 billion in assets. “Eventually, the Fed will hike, so there’s no reason for Treasuries to rally,” he said.