Treasuries Fall on Data While U.S. Stocks Little Changed

Washington (july 3)  Treasuries fell a second day on Wednesday after a private jobs report boosted speculation growth is strong enough for the Federal Reserve to consider higher rates. U.S. stocks were little changed near records, while emerging-market equities climbed to a 13-month high and copper gained.

The Standard & Poor’s 500 Index (SPX) rose 0.1 percent at 4 p.m. in New York, extending an all-time high. The Dow Jones Industrial Average gained 0.1 percent to a record after yesterday rising to within two points of 17,000 in intraday trading. The MSCI Emerging Markets Index advanced 0.8 percent. The 10-year Treasury yield rose six basis points to 2.62 percent. Copper climbed to a 19-week high, while West Texas Intermediate crude slid to a three-week low.

U.S. companies added 281,000 workers to their payrolls in June, figures from the ADP Research Institute showed today, before the Labor Department’s monthly job’s report tomorrow. A gauge of global equities closed at an all-time high yesterday after data showed manufacturing activity expanding in countries from China to the U.K. and the U.S. Federal Reserve Chair Janet Yellen said there is no need to change current monetary policy to address financial stability concerns. American equity markets close at 1 p.m. tomorrow before a holiday.
  Photographer: Brent Lewin/Bloomberg

“The economy is getting slowly better, and as a result you are seeing a general move higher in yields,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The bond market is telling you the economy is improving, but low levels of rates mean growth is still slow and inflation will not be a threat. All eyes will be on the jobs report.”

Labor Market

Data from employment to housing is fueling confidence that the world’s largest economy is rebounding after the worst contraction in gross domestic product since 2009. Economists in a Bloomberg survey forecast the Labor Department will report tomorrow that employers added 215,000 jobs in June, compared with 217,000 in May.

The ADP data today indicated staffing at companies climbed last month by the most since November 2012, boosting bets growth is heating up enough for the Fed to consider raising interest rates. The yield on benchmark 10-year Treasuries touched the highest in more than a week today. The average yield for the past decade is 3.41 percent. The Fed has kept its benchmark rate near zero since December 2008.

Yellen said last month that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. She emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

Financial Stability

Yellen said today that regulatory tools, and not interest rates, should be the main way to promote financial stability. The comments are significant because economists worry that central banks may now be causing a worldwide reach for yield as interest rates are suppressed by monetary policy.

The European Central Bank will probably keep interest rates unchanged at its meeting tomorrow after cutting its benchmark rate to a record low last month, according to the median forecast of economists in a Bloomberg survey.

“The ADP data is very strong,” Jim McDonald, chief investment strategist at Chicago-based Northern Trust Corp., said by phone. His firm manages about $915 billion of assets. “It’s another sign that we’re regaining some momentum in the latter part of the year. People are probably not going to want to have big bets on ahead of the payroll number.”

Small Swings

Bank of America Merrill Lynch’s MOVE Index, which measures price swings in Treasuries based on options, reached 52.74 basis points on June 30, the lowest closing level since May 9, 2013. The gauge, which was 53.25 yesterday, has dropped from last year’s high of 117.89 basis points reached on July 5.

The equities market is experiencing its smallest swings of the year. The S&P 500 moved 0.21 percentage point from its highest and lowest points today, the second-smallest swing since 1993 after a 0.20 reading in December. The gauge rallied 0.8 percent to an all-time high yesterday, after capping a sixth straight quarterly advance, as U.S. equities extended a rebound from the selloff that started with biotechnology and small-cap stocks about three months ago.

Source: Boolmberg