Treasurys declined, pushing 30-year bond yields to a nine-month high, as data showed the fastest expansion since 2005 last month in service industries, which account for 90 percent of the U.S. economy.
Bonds also slipped as the government prepared to issue a report tomorrow that economists predicted will show U.S. payrolls added jobs in January. Initial claims for unemployment benefits fell last week more than forecast, bolstering speculation the economic recovery is building momentum.
“People are waiting for payrolls,” Thomas di Galoma, head of U.S. rates trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors, said before the services report. “People are afraid it may be stronger than expected.”
Yields on the 10-year note climbed six basis points, or 0.06 percentage point, to 3.54 percent at 2:26 p.m. in New York, according to BGCantor Market Data. They touched 3.55 percent, the highest since Dec. 16. The price of the 2.625 percent security due in November 2020 fell 15/32, or $4.69 per $1,000 face amount, to 92 15/32. Two-year note yields rose four basis points to 0.70 percent.
Thirty-year bond yields reached 4.67 percent, the highest level since April 27, before trading at 4.66 percent.
Treasurys earlier pared losses as the Federal Reserve bought U.S. debt and stocks fell. The Standard & Poor’s 500 Index declined as much as 0.7 percent as a stronger dollar weighed on commodity producers, while global stocks dropped as protests against Egyptian President Hosni Mubarak intensified.
The central bank purchased $8.9 billion of Treasurys due between November 2016 and January 2018 as part of a $600 billion bond-buying program in a strategy called quantitative easing aimed at spurring economic growth. The amount was 37.7 percent of the securities that holders offered, compared with an average of 29.6 percent at the past 10 acquisitions.
Fed Chairman Ben S. Bernanke said in a speech today in Washington the U.S. needs to see faster job growth for a sufficient time before policy makers can be assured the economic recovery has taken hold.
Dallas Fed Bank President Richard W. Fisher said in an interview an improving economy may mean further quantitative easing won’t be needed.
A gauge of trader expectations for annual inflation over the next decade, the yield gap between U.S. 10-year notes and inflation-indexed securities, was at 2.33 percentage points, compared with 2010’s low of 1.47 percentage points in August.
The Institute for Supply Management’s index of non- manufacturing businesses rose to 59.4, from December’s 57.1, the Tempe, Arizona-based group said today. The median prediction of economists surveyed by Bloomberg News was 57.2. The services index averaged 56.1 in the five years to December 2007.
Payrolls ‘the Key’
U.S. payrolls increased by 145,000 last month, after a 103,000-job gain in December, according to economists surveyed by Bloomberg before a Labor Department report tomorrow. The data may also show the unemployment rate increased to 9.5 percent from 9.4 percent, according to the surveys.
“While it is known in the market that jobs are a lagging indicator, market psychology would argue that improvement in this sector would do a lot for growth,” said Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee. “Tomorrow’s numbers are the key.”
Applications for jobless benefits fell by 42,000 to 415,000 in the week ended Jan. 29, Labor Department figures showed today. Economists in a Bloomberg survey forecast claims would fall to 420,000.
Bernanke, speaking at the National Press Club, said economic growth hasn’t been fast enough to generate significant improvement in the labor market.
‘Stronger Job Creation’
“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” the 57-year-old Fed chief said.
While Bernanke said growth will pick up this year and the Fed’s purchases of Treasurys are “providing significant support to job creation and the economy,” he gave no indication whether he’ll maintain or adjust monetary stimulus after the asset buying-program ends in June. Bernanke has held the benchmark interest rate near zero since December 2008.
Fisher of the Dallas Fed said he isn’t inclined to support further quantitative easing after the bond-buying program ends in June.
“You can never say never, but I cannot imagine a convincing argument for further quantitative easing after this round, given what is developing now in the economy,” the 61-year-old regional bank chief said on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays.
Policy makers have the tools to exit quantitative easing when appropriate, Bernanke said. He repeated a call for Congress to come up with a plan to control the federal budget deficit.
Treasurys have lost 0.54 percent this year, after returning 5.88 percent in 2010, according to the Bank of America Merrill Lynch Treasury Master index. U.S. corporate securities have dropped 0.19 percent this year, after gaining 9.52 percent last year, another Merrill index showed.
U.S. bonds earlier trimmed losses as European Central Bank President Jean-Claude Trichet signaled no immediate plans to raise interest rates and data showed the jobless-claims drop was led by states that were affected by storms in prior weeks.
The euro fell 1.3 percent to $1.3634, while the greenback rose against 15 of its 16 most-traded counterparts.
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