Treasury yields up

US Treasury debt yields inched higher on Wednesday as payroll processor ADP reported solid US private-sector job growth in October and gains in US stock prices reduced the safe-haven appeal of government debt. Benchmark yields briefly made a run toward 3-1/2 week highs set earlier this week as Wall Street gained partly on news that Republicans took control of the US Senate after Tuesday's elections. The Republican victories bolstered bets on a push for federal legislations friendly to energy and other sectors in the coming year.
The outlook on the US economy improved somewhat after ADP said US companies hired 230,000 workers last month, the most since June. The latest ADP reading reinforced the view of an encouraging payrolls report due from the Labour Department on Friday, which would support the view the Federal Reserve would consider ending its near zero interest rate policy in mid-2015.
"The Fed is ready to raise rates. If you see wages rise, you have to time it around June of next year," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York. Benchmark 10-year Treasury notes were 2/32 lower in price, yielding 2.351 percent, up 1 basis point from late on Tuesday. The 10-year yield rose as high as 2.369 percent, a tad below a 3-1/2 week peak at 2.384 percent on Monday. Two of the three major US indexes rose on Wednesday, with the Standard & Poor's 500 Index and the Dow Jones industrial average both up 0.5 percent.
The 10-year yield was briefly unchanged after the Institute for Supply Management said its index on US services industries fell more than expected in October. The index's employment component, however, rose to its highest level since August 2005. Investor appetite for Treasuries was held in check by competing supply of corporate debt, which was expected to cross the $110 billion mark in November, according to IFR, a unit of Thomson Reuters.
The Treasury Department said it will sell a combined $66 billion in new three-year, 10-year and 30-year debt issues next week. It added that it expects to reduce the auction sizes of two-year and three-year notes gradually over the next quarter. Disappointing data released earlier on Wednesday on China and the euro zone reinforced concerns that problems in those major economies would eventually slow hiring and business activity at home and prevent the Fed from raising interest rates at least into mid-2015.
There have been growing expectations the European Central Bank would need to take more action to stimulate the region's economy. But a Reuters report on Tuesday on tension between national central bankers and ECB President Mario Draghi suggested further policy measures are unlikely anytime soon. The ECB will hold a policy meeting on Thursday. "The elephant in the room is the euro zone," said Zach Pandl, senior rates strategist at Columbia Management in Minneapolis.