Treasury Yields Surge to Two-Week High as Refuge Appeal Fades

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Treasuries declined, pushing 10-year note yields to the highest level in two weeks, as speculation Greece will reach a deal with its creditors to avert a default reduced refuge demand.

Treasury investors are increasingly focused on both a resolution to Greece’s debt crisis and improving U.S. economic data. Stronger readings have boosted the case for the Federal Reserve to raise interest rates as early as September as investors look ahead to June employment data to be released July 2.

“Most traders are exhausted about the Greece story,” said Kevin Giddis, the Memphis, Tennessee-based head of fixed-income capital markets at Raymond James & Associates Inc. “This is a little bit of the market preparing for the Fed. The market fully understands the Fed would like to go as soon as September if the numbers support it.”

The benchmark Treasury 10-year yield rose six basis points, or 0.06 percentage point, to 2.47 percent as of 4:59 p.m. New York time, according to Bloomberg Bond Trader data. It touched 2.49 percent, the highest on an intraday basis since June 11. The yield increased 21 basis points this week.

The price of the 2.125 percent note due in May 2025 fell 17/32, or $5.31 per $1,000 face value, to 96 31/32.

Treasuries remained lower after a report showed consumer confidence climbed in June to a five-month high. The University of Michigan said its sentiment index increased to 96.1 during the month, exceeding all estimates in a Bloomberg survey, from 90.7 in May.

Watching Data

Fed policy makers have stressed the timing of the first interest-rate increase since 2006 will depend on data, which a Bloomberg gauge shows are the strongest relative to economist estimates in almost four months.

“Unless you think Greece is going to become systemic, that is the only way you can justify not paying attention to broad-based positive economic activity,” said Tom Porcelli, chief U.S. economist in New York at Royal Bank of Canada’s RBC Capital Markets unit, one of 22 primary dealers that trade with the Fed. “I don’t think anyone thinks that.”

The Labor Department will say U.S. employers added 227,000 jobs in June, according to the median forecast of economists in a Bloomberg survey before the data are released July 2.

There’s 38 percent chance the Fed will increase its benchmark rate from near zero by September, and a 73 percent probability of an increase by December, according to futures data compiled by Bloomberg.

Greek Standoff

Greek talks remain unresolved with only days remaining before the country’s current bailout expires on June 30, when a 1.5 billion-euro ($1.7 billion) payment is due to the International Monetary Fund.

“The market moved on the back on what was happening in Europe and a little optimism they will sort things out tomorrow,” said Todd Hedtke, vice president in Minneapolis at Allianz Investment Management, which oversees $100 billion in assets. “Europe is really the tail that’s wagging the dog here in the U.S. Treasury market.”