Treasuries Fall Before Jobs Data on Signs of Labor-Market Health

Negative Yields Are Posing a Dilemma for Investors
  • Private payrolls rise more than forecast; jobless claims fall
  • Forecasters see June jobs rebound after May disappointment

Treasuries fell, with benchmark 10-year notes halting a four-day rally, as data signaled job-market resilience before the Labor Department releases its June payroll figures on Friday.

Yields rose as reports showed applications for unemployment benefits fell to the lowest since April and private payrolls rose more than forecast. The gap between yields on five- and 30-year debt, a gauge of the yield curve, narrowed to the flattest since April 2015. Friday’s release of national labor data for June comes after the U.S. in May added the fewest jobs in almost six years.

Global sovereign bonds retreated after surging on speculation that Britain’s June 23 vote to leave the European Union may damp global economic growth, as demand for the safest assets pushed yields to record lows from the U.S. to Europe to Japan. The Federal Reserve is losing confidence in its need to raise interest rates as officials face rising uncertainty about the outlook for growth at home and abroad, the minutes of its most recent meeting issued Wednesday indicate. Monetary easing by foreign central banks has complicated the Fed’s plan to normalize rates on signs of U.S. economic strength.

“This week the question is, if the employment situation was skewed to the negative and that gets unwound a little this month, what does that mean for the Fed?” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “Can they do something different given what’s going on in the rest of the world? Most people would say no, they can’t.”

Yields Rise

The benchmark 10-year note yield rose two basis points, or 0.02 percentage point, to 1.39 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. It closed Wednesday at a record-low 1.37 percent. The price of the 1.625 percent security due in May 2026 was 102 6/32.

The gap between yields on five- and 30-year debt, a gauge of the yield curve, fell to 117 basis points. Shorter-term notes tend to be more sensitive to monetary policy, while longer-term debt tends to track expectations for economic growth and inflation.

Private U.S. payrolls increased by 172,000 in June, according to a report Thursday from the ADP Research Institute, above forecasts for a gain of 160,000 in a Bloomberg survey of economists. Initial filings for U.S. unemployment benefits fell to 254,000 in the week ended July 2, according to Labor Department data, below the 269,000 median forecast.

Economists forecast the Labor Department’s June nonfarm payrolls report will show employers added 180,000 jobs. The U.S. added 38,000 jobs in May, the fewest since September 2010.

Futures prices show about a 12 percent probability that the Fed will raise rates this year, according to data compiled by Bloomberg. That’s down from a 76 percent probability assigned on June 2, the day before the release of the May jobs data.

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