US Treasury yields rose on Wednesday in step with equities, as a stronger stock market reduced safe-haven demand for US government debt. US stocks were higher as investors cheered strong company results led by Facebook Inc and snapped up beaten-down technology and internet favourites.
Treasuries have largely moved in lock-step with stocks in the past few weeks, yields rising and falling with equity prices. The sell-offs in stocks have been prompted by reports that tariffs, rising borrowing costs and a slowdown in China hurt corporate earnings in the third quarter and are expected to do the same in the fourth. Slumping stock prices raised speculation that weak markets could derail further planned interest rate hikes by the Federal Reserve. A stronger-than-expected payrolls report on Friday could renew expectations that the US central bank will remain hawkish, and in that case "you could see further volatility going through in equities and rates," said Gennadiy Goldberg, an interest rate strategist at TD Securities.
What's more, "recent Fed speakers appeared confident despite risky volatility that the economy continues to chug along... largely corroborated by the firm 3.5 percent reading on US Q3 GDP even after Chinese growth slowed appreciably to 6.0 percent and triggered official remedies," wrote analysts at Action Economics. Benchmark 10-year Treasuries yields were up nearly 3 basis points in mid-afternoon trade, last at 3.153 percent, but holding below a more than seven-year high of 3.261 percent hit on Oct. 9. Yields at either end of the curve were up, with the 30-year bond up about 2 basis points on the day last at 3.401 percent and the 2-year note up about one basis point, last at 2.875 percent.
Earlier on Wednesday, the ADP National Employment Report showed that private employers added 227,000 jobs in October, the most since February and beating economists' expectations of 189,000 jobs. "The data was strong. It does raise the expectation of a stronger payroll coming on Friday," said Goldberg. Friday's payrolls report will be watched for signs of rising wage pressures in addition to jobs gains. The Treasury Department said on Wednesday it will boost the size of debt auctions again in the coming quarter, as expected. It will increase two-year, three-year and five-year note auctions by $1 billion per month over the next two months. In November, it will increase the size of its two-year fixed rate note auction by $1 billion and also boost the size of auctions for seven-year and 10-year notes as well as 30-year bonds by the same amount during the month.