Treasuries Snap Two-Day Decline as Traders Look to Payrolls Data

Updated on
  • Investors await July U.S. jobs report to gauge Fed rate path
  • Futures prices show 41% probability of a hike this year

Treasuries gained, halting a two-day slide, as investors look to U.S. jobs data to gauge the Federal Reserve’s path on interest rates.

Benchmark 10-year note yields fell even after a private report showed employers added more jobs than forecast last month. Chicago Fed President Charles Evans said an improving U.S. economy could warrant a rate increase this year as traders await Friday’s release of the government’s monthly labor statistics.

Treasuries have slipped this month along with bonds worldwide after yields reached record lows in July. Expectations that the U.K.’s June vote to leave the European Union would curb global economic growth and keep the Fed from raising rates have given way to concern that sovereign debt yields have fallen too far, too fast. The average yield on bonds in Bank of America Corp.’s G-7 Government Index climbed to 0.58 percent, the highest level in five weeks, from a record low of 0.45 percent set in July.

"There is certainly demand for high-quality assets that keeps yields in in check, but there’s also enough supply to keep the market around this range," said Thomas Roth, senior Treasury trader in New York at MUFG Securities Americas Inc. "The market’s looking for the next thing, and it’s going to be Friday’s number."

Fed Outlook

The U.S. 10-year note yield fell one basis point, or 0.01 percentage point, to 1.54 percent at 5 p.m. in New York, Bloomberg Bond Trader data show. The price of the 1.625 percent security due in May 2026 was 100 3/4. The yield fell to a record-low 1.32 percent in July.

Payroll data released Wednesday by the ADP Research Institute showed U.S. companies added 179,000 jobs last month, beating estimates.

Traders assign about a 41 percent probability to a Fed rate hike this year, up from a 12 percent chance seen at the beginning of July, according to futures data compiled by Bloomberg.

“I do think that perhaps one rate increase could be appropriate this year,” Chicago Fed President Evans said. New York Fed President William Dudley said this week that investors are underestimating how many times policy makers will increase their benchmark this year and next.

Global bond gains earlier in the year are turning into losses. The G-7 government index has fallen 0.6 percent in the first two days of August, trimming this year’s return to 6.1 percent.