Treasuries Head for Weekly Decline Before Jobs Report

Treasuries fell, poised for their steepest weekly loss since the start of the year, as U.S. stock futures rose and economists said a report today will show the nation added jobs, undermining demand for the safest assets.

Benchmark 10-year yields rose to the highest level in two weeks after data yesterday showed initial claims for jobless benefits in the U.S. unexpectedly dropped to a six-week low. China’s exports exceeded forecasts in February, a government report today showed, indicating that improving global demand may help to sustain the rebound in the world’s second-biggest economy. U.S. stock futures climbed, indicating the Standard & Poor’s 500 Index will extend a 5 1/2-year high.

“It all hangs on payrolls today,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. “Expectations have been pumped up so much ahead of the report that we would need to see a really good number to make markets more optimistic. There’s a slightly optimistic spin on the U.S. economy. Treasury yields have drifted higher.”

Benchmark Treasury 10-year yields rose two basis points to 2.02 percent at 6:58 a.m. New York time, according to Bloomberg Bond Trader data. That’s the highest level since Feb. 21. The rate has increased 17 basis points, or 0.17 percentage point, this week, the most since the period ended Jan. 4. The 2 percent note due in February 2023 fell 5/32, or $1.56 per $1,000 face amount, to 99 7/8.

Yield Spread

The extra yield investors demand to hold U.S. 10-year notes instead of similar-maturity German bunds widened to 51 basis points, the most since January 2011, according to closing-price data compiled by Bloomberg. The so-called spread was as narrow as four basis points in June.

Futures on the Standard & Poor’s 500 Index rose 0.4 percent. The S&P 500 has rallied 1.7 percent this week, on course for the biggest gain in two months.

Treasuries have handed investors a 0.9 percent loss this year, while bonds in an index of sovereign securities around the world were little changed, according to Bank of America Merrill Lynch indexes.

The U.S. added 165,000 jobs in February after a 157,000 gain in January, according to the median estimate of 90 economists in a Bloomberg News survey before the Labor Department reports the figure at 8:30 a.m. in Washington. The jobless rate held at 7.9 percent, a separate survey showed.

Benchmark Treasury 10-year note yields increased three basis points on Feb. 1 when payrolls grew and revisions showed bigger gains in prior months.

Rising Volatility

Bank of America Merrill Lynch’s MOVE Index, a gauge of price swings in U.S. government securities, shows volatility is rising ahead of the employment report.

The index has climbed for three days, and reached 60.50 basis points yesterday, the highest level since Feb. 13. Its average over the past year is 66.43 basis points, according to data compiled by Bloomberg.

Ten-year yields will decline to 1.86 percent by March 31 and then rise to 2.29 percent by year-end, according to a Bloomberg survey of economists, with the most recent projections given the heaviest weightings.

“Two percent is a critical level,” said Kim Youngsung, head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $103.7 billion in assets. “You may get buyers at that level.”

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