Treasuries Decline as Traders Push Back Fed Rate Increase Bets

  • Ten-year note yield rises above level seen before jobs report
  • Treasury sells $21 billion of three-month bills at zero yield

Treasuries fell, with 10-year yields rising the most in two weeks, as stocks extended their longest rally of 2015 amid expectations that the Federal Reserve will take its time raising interest rates.

Debt maturing in 10 and 30 years underperformed shorter-term securities, as the benchmark 10-year note erased gains seen after an Oct. 2 report showed the U.S. added fewer jobs than forecast in September.

"If you think the Fed’s going to be on hold for a long time, you have higher potential growth and potentially higher inflation," said Aaron Kohli, an interest-rate strategist in New York with BMO Capital Markets, one of 22 primary dealers that trade with the Fed.

Ten-year note yields rose the most since Sept. 21, climbing six basis points, or 0.06 percentage point, to 2.06 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. The 2 percent security due in August 2025 fell 18/32, or $5.63 per $1,000 face amount, to 99 1/2.

The Standard & Poor’s 500 Index extended its advance to 5.6 percent over the past five days as commodity prices rose, after the Stoxx Europe 600 Index rose the most since August.

The Treasury’s offering of $21 billion of three-month bills on Monday sold at a zero percent yield for the first time, with bidding rising to the highest level since June.

The odds of a Fed rate increase were about 10 percent for the October meeting and 35 percent for the December meeting, according to futures data compiled by Bloomberg. The odds for a boost by the October meeting were 18 percent on Oct. 1. The calculations are based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff, versus the current target range of zero to 0.25 percent.

Growth in U.S. services slowed in September, as the Institute for Supply Management’s non-manufacturing index fell to 56.9 from 59 in August, below the 57.5 forecast in a survey of Bloomberg economists. The U.S. added 142,000 jobs in September, versus 201,000 that analysts predicted, a Labor Department report at the end of last week showed.

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