Treasuries Fall a Third Day on Signs U.S. Economy StrengtheningSusanne Walker and Daniel Kruger
Treasuries declined for a third day as gains in company hiring and service businesses bolstered the case for the Federal Reserve to raise interest rates this year amid a strengthening economy.
Benchmark 10-year note yields rose in the biggest three-day increase since September 2013 after a report from the ADP Research Institute showed companies added 213,000 jobs in January, the fifth straight month above 200,000. The U.S. is forecast to report its 12th consecutive monthly nonfarm-payrolls gain of more than 200,000 on Friday.
“A good number here cemented the selling weakness we’ve already seen,” said Aaron Kohli, an interest-rate strategist at BNP Paribas SA in New York, one of 22 primary dealers that trade with the Fed. “ADP is setting up the market for what’s going to happen in NFP. At some point you can’t keep adding 200,000 jobs and not expect some wage pressure.”
The 10-year note yield increased three basis points, or
0.03 percentage point, to 1.82 percent at 1:32 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2.25 percent security due in November 2024 dropped 7/32, or $2.19 per $1,000 face amount, to 103 27/32.
The yields have climbed 18 basis points since Jan. 30.
U.S. nonfarm payrolls expanded by 230,000 in January, economists forecast before the Labor Department report. Average hourly earnings rose 0.3 percent, after dropping 0.2 percent in January, economists forecast.
“If we get some signs of more wage growth, people may pull expectations back in” and look for an earlier-than-anticipated increase in interest rates by the Fed, said Thomas Simons, a government-debt economist in New York at primary dealer Jefferies LLC.
There’s a 69 percent chance of higher borrowing costs by year-end, according to calculations by Bloomberg based on futures trading. The central bank has kept the key rate at virtually zero since 2008 to support the economy.
Fed policy makers said in a statement Jan. 28 after a meeting that the U.S. economic expansion was “solid,” an improvement over the “moderate” performance it saw in December. They played down low inflation.
Cleveland Fed Bank President Loretta Mester said interest rates should be raised “soon” amid increased economic momentum, “significant improvement” in labor markets and the boost consumers will get from cheaper fuel.
“It will soon be appropriate to begin moving rates up from zero,” Mester, who doesn’t vote on policy this year, said in a speech in Columbus, Ohio. “Because policy must be forward-looking, in my view liftoff should occur before our goals are fully met.”
ADP’s monthly company-hiring increases averaged 212,000 in
2014. A Bloomberg survey forecast a January gain of 223,000.
The Institute for Supply Management’s non-manufacturing index increased to 56.7 from a six-month low of 56.5 in December. Readings above 50 signal expansion.
Treasuries’ decline this week followed the best January in a quarter-century as investors sought haven amid renewed political turmoil in Greece, a slump in oil and the European Central Bank’s announcement it would buy sovereign bonds to head off deflation.