US bond yields slightly above 3% after Fed minutes as bond prices decline

January 8, 2014

Chicago (Jan 8)  U.S. Treasury prices fell on Wednesday as an upbeat report on the private labor market signaled faster U.S. economic growth and Federal Reserve released minutes, supporting the view the Fed would stay on course to wind down its bond purchases in 2014. 

Benchmark 10-year Treasury notes were down 15/32 in price, yielding 3.000 percent.

The Treasury auctioned $21 billion in 10-year notes at a high yield of 3.009 percent. The bid-to-cover ratio, an indicator of demand,was 2.68. The Treasury will complete this week's debt offering on Thursday with a $13 billion sale of 30-year bonds.

The encouraging jobs news spurred selling in government bonds.

The market's losses were limited with benchmark yields holding below 3 percent by the Fed's planned purchase of long-dated Treasuries under the third round of its quantitative easing (QE3) program. 

Treasuries yields have risen since last spring after the Fed signaled it will dial back its massive bond purchase stimulus in response to an improving economy.

Fed officials, while unemployment has remained higher than where they like, have acknowledged private and public hiring has picked up with consumer demand and business activities.

Payroll processor ADP said on Wednesday U.S. companies added 238,000 jobs in December, the strongest monthly rise in 13 months. It also bested the median forecast of 200,000 among analysts polled by Reuters. ADP also upgraded its November figure on private hiring to 229,000 from the initially reported 215,000.

Some analysts see the ADP as a predictor for the government's payroll reading. The Labor Department will release its December jobs report at 8:30 a.m. on Friday. Economists polled by Reuters forecast U.S. employers likely added 196,000 jobs in December after a 203,000 rise in November.

Meanwhile, the Fed will buy $1.00 billion to $1.50 billion in long-dated bonds due in 2036 to 2043 as a part of its planned $40 billion purchases in Treasuries this month. On Monday, it bought $1.39 billion of these maturities.

In the wake of the latest ADP report, some investors sought higher yield at the upcoming 10-year auction, part of this week's $64 billion in coupon-bearing government debt.

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