(Bloomberg) -- Treasuries fell, pushing 10-year note yields higher for a third day, as a report showed initial claims for unemployment benefits fell last week, reducing haven demand.
U.S. government securities extended losses after European Central Bank President Mario Draghi signaled officials will wait until March before deciding whether to cut interest rates. Yields advanced earlier before a report tomorrow thats forecast to show the U.S. added jobs last month, boosting the case for the Federal Reserve to keep trimming bond purchases. The U.S. is scheduled to auction $70 billion in notes and bonds next week.
Were sliding a little bit to higher yields, said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 21 primary dealers that trade with the U.S. central bank. The ECB didnt lower rates and didnt make it clear they were going to lower rates in the next meeting. We have a big supply ahead of us.
The 10-year yield advanced three basis points, or 0.03 percentage point, to 2.69% at 10:28 a.m. in New York after rising nine basis points during the previous two days, according to Bloomberg Bond Trader prices. The price of the 2.75% security due in November 2023 dropped 7/32, or $2.19 per $1,000 face amount, to 100 15/32.
The yield on the 30-year bond increased two basis points to 3.67%, the highest level since Jan. 29.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index rose for a third day yesterday, reaching 67.3 basis points, the highest since Jan. 9. It touched a two-month low of 58.9 basis points on Jan. 13.
Yield Curve
The difference between the yields on two-year notes and 10- year securities, called the yield curve, widened for a third day, suggesting investors are betting on faster economic growth. It increased to 238 basis points, after reaching a three-month closing-basis low of 228 basis points on Feb. 3.
Stocks rose, with the Standard & Poors 500 Index advancing 0.8% and the Stoxx Europe 600 Index rallying 1.4%.
Emerging-market currencies including the Russian ruble and the Hungarian forint strengthened against the dollar after sliding last week.
Jobless claims dropped to 331,000 in the period ended Feb. 1, from a revised 351,000 the previous week, the Labor Department said in Washington. The median forecast of economists surveyed by Bloomberg called for a decrease to 335,000.
U.S. employers added 180,000 jobs last month, versus a lower-than-forecast increase of 74,000 in December, according to a Bloomberg News survey of economists before tomorrows Labor Department report.
Critical Numbers
Clearly everyone will be waiting for critical employment numbers tomorrow, said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. Stability in emerging markets and equities has taken some of the froth off the table and weve got profit-taking in Treasuries because of that. The safe-haven bid is coming out of the market.
The productivity of U.S. workers rose more than projected in the fourth quarter as the worlds largest economy expanded, another report showed, helping to restrain labor costs. The measure of employee output per hour increased at a 3.2% annual rate, the Labor Department reported.
We are still quite positive on the U.S. economy, said Vincent Chaigneau, head of fixed-income and foreign-exchange strategy at Societe Generale SA in Paris. We believe well see better U.S. data again and that will translate into a selloff in Treasuries. Were leaning to the bearish side.
Treasury Returns
Treasuries due in 10 years and longer returned 6% in January, according to data compiled by Bloomberg, as declines in emerging markets boosted demand for the safest assets.
Fed policy makers ordered the first two cuts in December and January to asset purchases designed to cap borrowing costs and spur the economy. The monthly buying was trimmed to $65 billion a month, from $85 billion.
The central bank is scheduled under the program to purchase as much as $1.25 billion today in Treasuries maturing between February 2036 and November 2043.
The Treasury is scheduled to sell notes and bonds next week on three consecutive days beginning Feb. 11: $30 billion in three-year debt, $24 billion in 10-year securities and $16 billion in 30-year bonds.
Treasury trading volume at ICAP Plc, the largest inter- dealer broker of U.S. government debt, rose to $404 billion yesterday, from $366.5 billion the day before. It increased to $494.3 billion on Jan. 29, the most in seven months.
Signs last year the Fed would curtail its $85 billion of monthly buying helped push the yield on 10-year Treasuries from as low as 1.61% in May to about 3% in September.
Yield Forecast
Ten-year note yields will climb to 3.42% by year- end, according to a Bloomberg survey of economists and analysts with the most recent forecasts given the heaviest weightings.
The odds that policy makers will increase the target for overnight lending between banks to at least 0.5% by January 2015 are 12%, based on futures contracts. The Fed has kept its target in a range of zero to 0.25% since 2008 to support the economy.
The Bloomberg U.S. Treasury Bond Index has gained 1.7% this year as tumbling emerging-market currencies and signs of slowing economic growth have boosted haven demand.
