U.S. bond yields reach almost 2-year high on GDP, jobs reports

Floating Rates

Three months ago, the Treasury had said floating-rate sales may occur as early as the fourth quarter this year. The Treasury also said sales next week of notes and bonds will be unchanged from last quarter at $72 billion. The quarterly refunding, held in February, May, August and November, have remained at that level since November 2010.

“The Treasury is taking a very conservative and cautious approach as the improvement in fiscal situation has been somewhat questionable this year,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of the 21 primary dealers that are required to bid at government debt auctions. “The sustainability of the improvement we’ve seen is not entirely clear. So the Treasury doesn’t want to have to ramp up borrowing again after cutting it.”

The August auctions will allow refunding of $69.6 billion of securities maturing on Aug. 15 and raise $2.4 billion of new cash.

U.S. gross-domestic-product growth was 1.7% in the second quarter at an annualized rate, compared with a Bloomberg News forecast of 1%. The ADP Research Institute said that employers added 200,000 jobs in July, compared with a forecast of 180,000 jobs in a Bloomberg News survey of economists.

Jobs Outlook

The unemployment rate fell to 7.5% in July, according to the median forecast of 83 economists in a Bloomberg News survey. The economy added 185,000 jobs for the month, the median forecast of 86 economists in a separate survey shows.

The Fed, which has been buying $85 billion of bonds each month to put downward pressure on borrowing costs, will probably start reducing purchases in September, based on a Bloomberg survey. Today’s statement is scheduled for 2 p.m. in Washington.

Treasury trading volume at ICAP Plc, the largest inter- dealer broker of U.S. government debt, rose 7.2% to $208.9 billion yesterday, still less than this month’s daily average of $270.7 billion. Volume has declined from June’s average of $446.2 billion a day.

Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index was 83.27 basis points yesterday. The figure has fallen from 117.89 on July 5, which the highest level since December 2010.

www.bloomberg.com

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