Treasuries headed for their biggest weekly decline since March before a government report that economists say will show the U.S. is adding enough jobs to allow the Federal Reserve to keep reducing its debt purchases.
U.S. government securities tumbled this week as data showed gains in manufacturing and service industries. The rout paused yesterday when the European Central Bank cut interest rates. Today’semployment data may show the U.S. added 215,000 workers in May, based on a Bloomberg News survey of economists. April’s increase of 288,000 was the most since January 2012.
“We are still expecting higher yields by year-end because the Fed tapering will continue,” said Tomohisa Fujiki, a rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 22 primary dealers that trade with the central bank.
The U.S. 10-year (CBOT:USU14) yield fell one basis point to 2.575 percent as of 11:35 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2.5 percent note due in May 2024 was 99 11/32. The yield will rise to 3 percent by year-end, Fujiki said. A basis point is 0.01 percentage point.
Treasuries gained yesterday amid speculation the ECB’s decision shows central banks are still willing to use stimulus measures that have propped up demand for fixed-income assets.
U.S. government securities are still down for the week, with the 10-year yield rising 10 basis points, the most since the period ended March 7.
The Bank of America Merrill Lynch MOVE Index, which measures price swings based on options, climbed to 65.1 basis points yesterday, the highest level in two months.
Japan’s 10-year yield declined one basis point to 0.605 percent, while Australia’s was little changed at 3.77 percent.
The Fed is tapering its monthly asset purchases as officials debate an exit to their ultra-loose monetary policy. The central bank next meets on June 17-18 after signaling at its April 29-30 meeting that interest rates would remain low for a “considerable time.”
Treasuries rose after the last jobs report on May 2 as average hourly earnings held unchanged in April compared with a median forecast for a 0.2 percent increase.
“We are comfortable making a tactical play for another run lower in rates before yields eventually resume a grind up into the second half of the year,” a report yesterday from Nomura Holdings Inc. by David Thielke and George Goncalves in New York said. Nomura is another primary dealer.