Treasuries fall on labor market optimism, ECB bond-buying plan

Treasuries fell, pushing 10-year yields up the most in three weeks, after data suggested U.S. job growth is accelerating and European officials announced plans to buy bonds to curb the region’s sovereign-debt crisis.

Ten-year note yields climbed from almost a one-month low after ADP Employer Services said companies added more workers than forecast and a government report showed fewer Americans filed applications for unemployment benefits last week. European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond-purchase program to regain control of interest rates in the area and fight speculation of a currency breakup.

“Labor numbers are obviously incredibly important,” said Donald Ellenberger, who oversees about $10 billion as co-head of government and mortgage-backed securities at Federated Investors in Pittsburgh. Draghi’s comments moved the markets because “Europe’s been hanging over the market’s head for a couple of years now,” he said.

The 10-year yield rose six basis points, or 0.06 percentage point, to 1.65 percent at 10:06 a.m. in New York. It increased as much as seven basis points, the biggest intraday jump since Aug. 15. The yield touched 1.54 percent on Sept. 4, the lowest level since Aug. 6.

Treasuries remained lower after the Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, rose to 53.7 in August from the prior month’s 52.6.

U.S. Employment

Companies in the U.S. added 201,000 workers in August, according to figures from Roseland, New Jersey-based ADP. The median estimate in a Bloomberg survey called for a 140,000 increase.

Jobless claims decreased by 12,000 to 365,000 in the week ended Sept. 1, the fewest in a month, the Labor Department reported today in Washington. The median estimate of economists surveyed by Bloomberg called for a drop to 370,000.

A Labor Department report tomorrow is forecast to show the U.S. added 130,000 jobs, according to economists in a separate Bloomberg survey. The unemployment rate held steady at 8.3 percent, economists forecast.

“Prior to the ADP number, people were probably of the mind that if it surprised, it would surprise to the downside,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “There may be a little more speculation that the number tomorrow could be better than expected, especially with this claims number.”

Fed Meeting

The policy-setting Federal Open Market Committee meets Sept. 12-13. Federal Reserve Chairman Ben S. Bernanke, speaking on Aug. 31 in Jackson Hole, Wyoming, said the costs of “nontraditional policies” appeared manageable when considered carefully. He said he wouldn’t rule out steps to lower a jobless rate he described as a “grave concern.”

U.S. government bonds returned 2.5 percent in 2012 through yesterday, Bank of America Merrill Lynch index data show. That compares with a 13 percent gain in the Standard & Poor’s 500 Index of shares, including reinvested dividends. German securities handed investors a 3.5 percent gain during the same period, according to the indexes.

The ECB bond-buying plan will “assist the monetary policy transmission mechanism in all euro area countries,” Draghi told reporters in Frankfurt today.

“‘We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area,” he said.

Fed Purchase

The Fed is scheduled to buy as much as $2 billion of Treasuries today due from February 2036 to August 2042 as part of Operation Twist, its program to swap shorter-term securities in its holdings with longer-term debt to put downward pressure on borrowing costs.

The Treasury will announce today it will auction $32 billion of three-year notes on Sept. 11, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on Sept. 13, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey.

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