Treasuries fall

Treasuries yields rose on Wednesday as strong private employment data led to higher expectations for Friday's key payroll report, and some analysts see yields rising further as a brighter economic outlook dims the attraction of Treasuries. ADP Employer Services said US private employers added 297,000 jobs in December, three times greater than forecast.
The report affirmed views about the country's growing economic strength, sending yields higher across the curve. "Today's all about data reaction, you had a blow-out ADP report," said Michael Cloherty, head of rates strategy at RBC Capital Markets in New York. "I think in general expectations have changed significantly for Friday's number."
Treasury debt prices also took another leg down after the Federal Reserve bought the minimum of its planned bond purchases for Wednesday, taking $1.5 billion in bonds ranging from 17 to 29 years in maturity. It had said it would buy between $1.5 billion and $2.5 billion.
Analysts said that any expectations the Fed could curtail its $600 billion bond-buying program, however, are likely unfounded after minutes released on Tuesday showed the US central bank sees a "high bar" for stopping its second quantitative easing program.
"They've clearly told us that there is a high threshold for changing the asset purchase program, signalled that we'll get $600 billion" in purchases, Cloherty said.
Benchmark 10-year Treasury notes were last trading 1-6/32 lower in price to yield 3.48 percent, up from 3.33 percent late on Tuesday. Seven-year notes also fell 30/32 in price to yield 2.87 percent, up from 2.73 percent late Tuesday and 30-year bonds were down 2-3/32 in price to yield 4.55 percent, up from 4.42 percent late Tuesday.
Fed fund futures also fell, bringing forward the implied timing of an interest rate hike from the Federal Reserve after the ADP data added to recent evidence the economic is recovering.
Fed fund futures now fully price in the first interest rate increase to 0.5 percent in January 2012. When the central bank announced its latest Treasury purchase program, dubbed QE2, in November, futures fully priced in the first rate hike to 0.5 percent for October 2012.
As growth accelerates and inflation risk increases, investors including banks and mutual funds may be increasingly likely to reduce Treasury holdings, which could also send yields higher, said Jim Caron, global head of interest rate strategy at Morgan Stanley in New York.