Treasury yields rose to the highest level in almost two years after a better-than-forecast employment report stoked speculation the Federal Reserve will begin to reduce the size of its asset purchases.
Benchmark 10-year note yields rose the most since October 2011 as the economy added 195,000 jobs in June, compared with the median forecast of 165,000 in a Bloomberg News survey, while the unemployment rate remained at 7.6 percent in May, as forecast. Fed Chairman Ben S. Bernanke said policy makers may “moderate” their asset-purchase program later this year and may end it mid-2014 if economic growth meets their forecasts. European Central Bank President Mario Draghi pledged yesterday to keep interest rates at a record low for an “extended period.”
“Expectations for a September taper are being completely priced in,” Shyam Rajan, an interest-rate strategist at Bank of America Merrill Lynch in New York, one of the 21 primary dealers that trade with the Fed. “The market’s expecting a smaller balance sheet going forward.”
The 10-year note yield increased 18 basis points, or 0.18 percentage point, to 2.68 percent at 9:02 a.m. in New York, according to Bloomberg Bond Trader prices, after gaining as much as 19 basis points. The yield touched 2.69 percent, the highest since Aug. 2, 2011. The U.S. bond market was closed yesterday for a public holiday.
Treasuries in May and June lost 3.2 percent, their worst two-month performance since the first two months of 2009 when they lost 3.6 percent, Bank of America Merrill Lynch indexes show. U.S. government securities declined 2.5 percent in the first half of the year, their worst start since 2009 when they dropped 4.5 percent, the indexes show.
Treasury 10-year notes declined on May 3 for the first time in three days, pushing yields up 11 basis points to 1.74 percent, when the Labor Department’s April report showed payroll gains of 165,000 exceeded the 140,000-job forecast in a Bloomberg survey and the jobless rate unexpectedly fell.
Ten-year notes climbed on April 5, when the government said payrolls added 88,000 jobs in March, trailing a Bloomberg survey forecast for a gain of 190,000.
An improving economy is dimming the lure of bonds as a haven. The Conference Board’s Consumer Confidence index rose in June to 81.4, exceeding all forecasts in a Bloomberg survey and the highest since January 2008, the New York-based private research group said June 25. Home prices have increased 12 percent since April 2012, according to the S&P/Case-Shiller Composite index.