Treasuries Decline as Stocks Advance Before U.S. Payroll Report

  • Stroger-than-expected ADP jobs data boosts Fed rate hike bets
  • U.S. yields may fall as Fed tightening comes to end: MUFJ-MS

Treasuries dropped as stocks advanced before the release of U.S. employment data Friday, damping demand for safer assets.

Benchmark 10-year notes fell for a second day after a report from ADP Research Institute on Thursday showed companies added more jobs in May than the highest forecast in a Bloomberg survey, fanning optimism toward the non-farm payrolls data. Futures signaled a 91 percent chance the Federal Reserve will raise rates this month, up from 86 percent odds a week ago.

The yen weakened against all its Group-of-10 peers, helping Japan’s Nikkei 225 Stock Average climb above 20,000 for the first time since 2015. The gauge jumped as much as 1.9 percent to 20,239.81, the highest since August 2015.

“The strong ADP reading is exerting selling pressure on Treasuries,” said Kenta Inoue, senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “However, investors can’t bet on one direction because there are political risk events next week.”

The U.K. will hold the general election on June 8 as Prime Minister Theresa May attempts to gain an increased parliamentary majority to back her Brexit negotiating stance. On the same day, Former FBI Chief James Comey will testify before the Senate Intelligence Committee about his dismissal by President Donald Trump.

The Treasury 10-year yield climbed one basis point to 2.22 percent as of 3:25 p.m. Tokyo time, according to Bloomberg Bond Trader prices. It may fall to 2 percent by year-end as the Fed stops raising the rate after June, said Inoue at Mitsubishi UFJ Morgan Stanley.

Should his prediction prove accurate, an investor who bought Friday would gain 3.1 percent, according to data compiled by Bloomberg.

Asia Rates at a Glance

Yield
(%)
Yield
Z-Score
Change
(bps)
Change
Z-Score
Japan0.0500.18+1.01.37
Australia2.413-1.38+1.70.81
New Zealand2.767-1.71+3.51.22
SingaporeNo trading seen
South Korea2.206-0.23-0.6-0.21
China3.6501.40+0.0-0.17
Indonesia6.958-1.10+0.50.37
Malaysia3.893-1.31+0.00.15
Thailand2.604-1.85-1.4-0.56
India6.616-1.84-1.0-0.11

NOTE: Table shows 10-year government bond yields and changes on the day. Z-scores measure deviation from average in past three months.

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