US Treasuries yields rose on Thursday as traders upped bets that Friday's highly anticipated employment report would come in above economists' expectations and after the European Central Bank announced a new bond-buying program.
A stronger-than-expected jobs figure on Thursday and stronger data in the US services sector led to higher expectations for Friday's payroll report, steepening the bond yield curve and sending benchmark 10-year notes yields to their highest levels in almost two weeks.
Risky assets including stocks also rallied, reducing bond demand, after ECB President Mario Draghi said the central bank will buy unlimited amounts of short-dated bonds to help lower the borrowing costs of Spain and Italy, which are bearing the brunt of the debt crisis in the euro zone.
"I think the move today is more on the number than on anything out of Europe," said James Newman, head of Treasuries and Agency trading at Keefe, Bruyette and Woods in New York. "They're getting themselves wound up that we're going to have a strong employment number tomorrow."
Benchmark 10-year notes were last down 23/32 in price to yield 1.68 percent, up from 1.60 percent late on Wednesday. Thirty-year bonds fell 1-30/32 in price to yield 2.80 percent, up from 2.71 percent. Some investors expect that a high payrolls number on Friday would reduce the odds that the Federal Reserve will launch a third bond purchase program when it meets next week.
The ADP National Employment Report on Thursday showed that US private employers added 201,000 jobs in August, easily beating economists' expectations for 140,000 new private sector jobs. Data from the Institute for Supply Management also showed that the pace of growth in the massive US services sector rose in August on the back of a rebound in employment and exports.
"If the payroll number is as strong as these numbers seem to hint, it could on the margin make Fed easing a little less likely," said David Sloan, an economist at 4Cast Ltd in New York. That said, "I think this number isn't a reliable guide to payrolls." Employers are expected to have added 125,000 jobs to their payrolls in August, according to the median estimate of 87 economists surveyed by Reuters.
Traders said that markets expectations, or the so-called "whisper number," is much higher at around 160,000. The Fed will deliver the statement from its two-day policy meeting next Thursday. Other closely watched events next week will include a ruling by Germany's Constitutional Court on September 12 on whether the euro zone's permanent bailout fund is compatible with German law, a vital condition for it to come into force.
The Netherlands will hold elections the same day. The Treasury will also sell $66 billion in new supply next week, which may weigh on debt yields. The sales will include $32 billion in three-year notes on Tuesday, $21 billion in 10-year notes on Wednesday and $13 billion in 30-year bonds on Thursday.
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