Treasuries fall waiting on minutes

Treasuries fell for the first time in three days on concern minutes from the Federal Reserve’s last meeting will show policy makers are leaning toward accelerating the pace of interest-rate increases next year.

U.S. government securities have fluctuated since a monthly payrolls report July 3 as investors try to gauge the strength of the economy. While employers added more jobs in June than analysts predicted, hourly earnings growth slowed. The U.S will sell $21 billion of 10-year notes today and $13 billion of 30- year bonds tomorrow.

“Ultimately, rates do go higher -- as we get closer to a liftoff date,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 22 primary dealer that trade with the Fed. “We’ll just chop around here” until the minutes.

The benchmark U.S. 10-year yield rose two basis points, or 0.02 percentage point, to 2.58 percent at 8:51 a.m. New York time, according to Bloomberg Bond Trader prices. The 2.5 percent note due May 2024 fell 6/32, or $1.88 per $1,000 face amount, to 99 10/32. The yield dropped to 2.55 percent yesterday, the lowest since July 2.

Ten-year Treasuries have returned 5.7 percent this year through yesterday, compared with 2.9 percent for the broad market, according to Bank of America Merrill Lynch indexes.

Yield curve

The gap between yields on U.S. five-year notes and 30-year bonds narrowed for a fourth day to 1.67 percentage points, the least since September 2009 as investors anticipate interest rates will rise in a slow-growth and low-inflation environment. The yield curve measures securities of different maturities.

The U.S. last sold 10-year notes in June, when investors submitted bids for 2.88 times the amount of securities available, up from 2.63 times in May. The Treasury auctioned $27 billion of three-year notes yesterday.

Investors are adding to bets the Fed will raise borrowing costs next year after the U.S. reported last week that employers hired 288,000 workers in June, compared with the 215,000 projected by a Bloomberg News survey of economists.

Traders see a 78 percent chance the Fed will raise its key rate by September 2015, compared with about 50 percent at the end of May, federal fund futures contracts show. The central bank has kept its target for the benchmark fed funds rate in a range of zero to 0.25 percent since December 2008.

“If the minutes are on the hawkish side it will be interesting to the market as the meeting happened before the payrolls report,” said Orlando Green, a fixed-income strategist at Credit Agricole SA’s corporate and investment banking unit in London. “We think fundamentally there’s still room for yields to rise but market still needs convincing. There’s a wait-and- see feel.”

Other reports last week revealed the uneven nature of the recovery. Average hourly earnings increased 2 percent in June from the year before, versus 2.1 percent in May and 2.7 percent five years earlier. Treasuries also rose yesterday as a decline in stocks around the world drove demand for the relative safety of sovereign debt.

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