Treasuries Hold Gains Before Jobs Report That May Guide the Fed

  • Nonfarm payrolls seen at 180,000 in July vs 287,000 in June
  • Traders see 39% chance of Fed hike in 2016, vs 12% on July 1

Treasuries held a gain before a U.S. jobs report Friday that may provide investors with clues on the path for interest rates this year.

Still, the nation’s benchmark 10-year notes were set a weekly decline as traders braced for the release of the government’s monthly labor statistics, which may add to signs of an improving U.S. economy that could warrant a rate increase by the Federal Reserve this year. U.S. nonfarm payrolls increased by 180,000 in July following a surge of 287,000 in June, according to the median estimate of a Bloomberg survey of economists.

“We expect another robust rise in employment,” said Birgit Figge, a fixed-income strategist at DZ Bank AG in Frankfurt. “It also seems that the Fed wants to stay on the rate-hiking path, with some hawkish central bankers at the moment. So I won’t rule out a hike in December.”

Treasuries were little changed Thursday. The benchmark 10-year yield was 1.55 percent as of 6:26 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in May 2026 was 100 23/32. The yield fell one basis point, or 0.01 percentage point, on Wednesday.

Fed Bets

A separate payrolls report released Wednesday by the ADP Research Institute showed U.S. companies added 179,000 jobs last month, beating estimates. A report showed growth at U.S. service providers cooled in July from a seven-month high the month before, and were still consistent with more measured progress in the economy.

Traders assign about a 39 percent probability to a Fed rate increase this year, up from a 12 percent chance seen at the beginning of July, according to futures data compiled by Bloomberg.

“Downside is limited” for Treasuries, “given benign inflation pressures and the continued reach for yield,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “We expect a modest Fed tightening in December. By then the Fed should have enough ammunition to warrant a move.”

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