Treasuries Drop as Dollar Jumps, U.S. Stocks Gain on Jobs

Treasuries sank, sending the 10-year yield to the highest since August 2011, while the dollar rallied and gold tumbled as faster-than-forecast jobs growth fueled bets the Federal Reserve will begin to reduce its bond buying. U.S. stocks extended a weekly advance.

The rate on the 10-year U.S. note climbed 22 basis points to 2.72 percent as of 4 p.m. in New York and the Dollar Index, which tracks the currency against six major peers, rose 1.5 percent to 84.45 and touched a three-year high. Gold futures declined 3.1 percent to $1,212.70 an ounce. The Standard & Poor’s 500 Index rose 1 percent, extending its weekly gain to

1.6 percent. Trading volumes for stocks in the U.S. benchmark index were 29 percent below the 30-day average at this time of day as markets reopened after Independence Day.

U.S. employers added 195,000 workers last month, almost the same as in May, while the jobless rate held at 7.6 percent, according to data from the Labor Department. European Central Bank President Mario Draghi pledged yesterday to keep interest rates at a record low for an “extended period.” The statement contrasts with that of the Fed, which fueled last month’s global stock and bond rout by signaling debt purchases could be scaled back this year.

Today’s jobs report “should be continued bad news for the bond market,” David Kelly, the chief global strategist at JPMorgan Funds in New York, said by telephone. His firm oversees about $400 billion in mutual funds. “You have an economy that is clearly improving, it’s improving steadily. This economy is a tortoise not a hare. It is moving forward, but the bond market is still priced like it is moving backward. Ultimately, this is not bad news for the stock market.”

Treasury Retreat

Treasuries lost 3.2 percent in May and June, their worst two-month performance since the first two months of 2009 when they lost 3.6 percent, Bank of America Merrill Lynch indexes show. U.S. government securities declined 2.5 percent in the first half of the year, their worst start since 2009 when they dropped 4.5 percent, the indexes show.

A gauge of U.S. corporate credit risk rose after the jobs data. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased

1.3 basis points from July 3 to a mid-price of 86.5 basis points at 12:34 p.m. in New York, according to prices compiled by Bloomberg. The measure fell to as low as 82 before the Labor Department report.

The growth in payrolls exceeded the median forecast in a Bloomberg survey that projected a 165,000 gain. Hourly earnings in the year ended in June advanced 2.2 percent, the most since July 2011. Revisions to the prior two months’ reports added a total of 70,000 jobs to the employment count in April and May.

‘Training Wheels’

“The baton is gradually being handed from a Fed-aided economy to one that can stand alone without training wheels on,” Jim Russell, a Cincinnati-based senior equity strategist at U.S. Bank’s wealth management group, which oversees about $110 billion, said by telephone. “Housing numbers fit that trend, auto demand fits, but nothing speaks more loudly to that trend than strong labor statistics and we certainly hit the nail on the head this morning.”

Banks, which tend to benefit from a steepening yield curve, rose 2.2 percent as a group to lead gains among the 24 industries in the S&P 500. The difference between rates on 10-year and 2-year Treasuries jumped to an almost two-year high of 233 basis points, or 2.33 percentage points. Zions Bancorp, SunTrust Banks Inc. and KeyCorp rallied more than 4 percent to lead the gains in banks.

Earnings Season

Financial firms are forecast to post a 17 percent jump in second-quarter earnings for the strongest growth among 10 industries, according to analyst estimates compiled by Bloomberg. While S&P 500 earnings are projected to have risen

1.8 percent from April through June, the forecast is for a 1 percent drop in profits when financials are excluded. Alcoa Inc. will unofficially mark the start of the reporting season on July

8. JPMorgan Chase & Co. and Wells Fargo & Co. will be the first major banks to report on July 12.

Real-estate, utility and telephone companies were among the worst performers of 24 groups in the S&P 500 today as rising Treasury yields compete with their dividends. Each industry pays at least 3.1 percent of their share prices, among the six highest-yielding groups of the 24.

REITs Sink

Real-estate investment trusts that buy mortgage debt slumped. A Bloomberg index of shares in the REITs tumbled as much as 6 percent, the largest intraday drop since October 2011 before the decline was pared to 3.9 percent. Annaly Capital Management Inc., the largest of the companies, and American Capital Agency Corp., the second biggest, each plunged more than 5 percent.

Zoetis Inc. climbed 3 percent as Bank of America Corp. analysts boosted their rating on the animal-health company spun off by Pfizer Inc. Tesla Motors Inc. climbed 4.2 percent after saying it has received hundreds of orders for its electric cars in Hong Kong. Homebuilders retreated 3.4 percent as a group amid concern rising interest rates may curtail a housing recovery.

Global equities have lost more than $3.7 trillion in value and U.S. Treasury yields have climbed since Fed Chairman Ben S. Bernanke indicated May 22 the central bank’s asset-buying program could be tapered should the job market continue to improve.

The purchases, currently at $85 billion a month, have helped the MSCI All-Country World gauge rally 14 percent in the past year.

European Movers

The Stoxx Europe 600 Index lost 1.3 percent after surging

2.3 percent yesterday following Draghi’s pledge to keep interest rates low. BHP Billiton Plc and Glencore Xstrata Plc led commodity producers lower. Heineken NV fell after JPMorgan downgraded its rating of the stock.

Sky Deutschland AG jumped 4.6 percent today, rising to its highest price since 2008, after Goldman Sachs Group Inc. added the pay-television operator to its conviction-buy list. The brokerage predicted that the company’s number of subscribers will accelerate in the second half of this year.

The MSCI Emerging Markets Index erased gains after the U.S. payrolls data, dropping 0.6 percent. Earlier, the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong gained 2.1 percent and China’s money-market rate capped a second week of declines.

Pakistan’s KSE 100 Index climbed 1 percent to the highest level since June 17 after the country and the International Monetary Fund agreed on a $5.3 billion loan to boost the nation’s depleted currency reserves.

Bond Yields

Portugal’s 10-year yield fell 14 basis points to 7.13 percent, trimming its weekly advance to 68 basis points. Spain’s 10-year yields added one basis points to 4.66 percent, for a 11 basis point decline this week. Italian 10-year yields climbed three basis points to 4.42 percent, completing a 12 basis-point decline this week.

West Texas Intermediate crude oil rose to a 14-month high, jumping 2 percent to $103.22 a barrel, amid the jobs data and concern that unrest in Egypt will escalate.

Corn futures fell 2.3 percent to the lowest since 2010 and soybeans declined on speculation that warm weather will boost prospects for crops in the U.S., the world’s top producer. Wheat dropped. Dry weather is expected across the Midwest in the next six to 10 days, benefiting some plants that trailed average development for this time of year because of cool, wet conditions, DTN said. As much as six times the normal amount of rain fell in the past 30 days in parts of Iowa, Illinois and Indiana, National Weather Service data show.

Before it's here, it's on the Bloomberg Terminal.