Treasury yields jump, then retreat

US short-dated Treasury yields briefly touched at least one-week highs on Thursday after strong data on US private payrolls marginally boosted expectations for more Federal Reserve interest rate increases in 2017, while caution ahead of Friday's jobs report limited the move. The ADP National Employment Report showed US private employers added 253,000 jobs in May, above estimates of 185,000 from economists surveyed by Reuters.
The data reinforced expectations for a Fed rate hike at the end of the central bank's June 13-14 meeting and may have marginally boosted views that a September increase is still possible, analysts said. That helped push up short-dated yields, which are considered more vulnerable to Fed actions. The ADP figures come ahead of the US Labour Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment. Economists expect total non-farm employment to show an increase of 185,000 jobs.
The ADP data pushed yields on Treasuries maturing between two and 30 years to session highs. Three-year yields hit a one-week high of 1.465 percent, and the two-year's reached an eight-day peak of 1.314 percent. "Even if ADP is off by, say, 60,000, the payrolls would be 180,000-ish, and that's definitely consistent with a Fed hike in June," said John Herrmann, director of interest rates strategy at MUFG Securities in New York. "We think it's consistent with continued progress in the economy and possibly a hike in September."
The move was brief, however. Yields soon stabilized and were last standing just slightly higher on the day as caution prevailed ahead of the US May non-farm payrolls report and on US political uncertainty. "There's still a lot of potential distress for the markets," said Kim Rupert, managing director for fixed income at Action Economics in San Francisco.
Yields pared their rise in afternoon US trading and neared session lows after a White House document seen by Reuters said Trump would announce that the United States would withdraw from the landmark Paris climate agreement. Trump made the announcement shortly afterwards. Benchmark 10-year Treasuries were last down 5/32 in price, with the yield at 2.217 percent from 2.198 percent late on Wednesday.