By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices fell on Wednesday,
pushing short-term yields up by the most in about a month, after a
report from ADP said private employment jumped 297,000 in the U.S.
last month, almost triple what economists had expected.
The data may spur speculation that Friday's Labor Department
report on U.S. employment comes in much stronger than currently
forecast, which "would likely be viewed as the time to put back the
hot dogs and break out the steaks," said Kevin Giddis, president of
fixed-income capital markets at Morgan Keegan.
Yields on 10-year notes (UST10Y) , which move inversely to
prices, rose 11 basis points to 3.44%, after falling to 3.30%
before the report.
A basis point is one-hundredth of a percentage point.
Yields on 2-year notes (UST2YR) rose 8 basis points to 0.71%,
the biggest increase since early December.
Thirty-year bond yields (UST30Y) added 10 basis points to
4.52%.
ADP's report on hiring by private companies comes two days
before the government's closely followed nonfarm-payrolls report
for last month.
Economists polled by MarketWatch predict the Labor Department's
report, which includes government workers, will show a payrolls
gain of 143,000 in December, with the unemployment rate pegged to
remain at 9.8%.
The ADP report "is unquestionably a positive for the economy,
the labor market, income growth and risk assets," said Dan
Greenhaus, chief economic strategist at Miller Tabak. "At the same
time, it should be pointed out that December always has seasonal
quirks for a host of estimates."
Treasurys stayed down after the Institute for Supply
Management's services index rose to 57.1 in December, up from
November and also topping analysts' forecasts. Readings above 50
indicates growth.
The employment component of the ISM index was a little weaker,
however, as analysts at TD Securities noted.
Along with the employment component of the ISM's manufacturing
index earlier this week, the two indicate "a solid pop in payrolls
north of 150,000, but nowhere close to the 300,000 implied by the
ADP," said Eric Green, chief U.S. rates strategist at TD
Securities.
Fed buyback
Treasury prices also took a step lower after the Federal
Reserve's buyback of 2028-2040 bonds, the third of five operations
this week.
The purchases of Treasurys is part of so-called quantitative
easing, the Fed's program to support the economy, but also include
reinvestment of maturing mortgage-related holdings. The central
bank bought $1.5 billion, at the low end of the range it previously
stated.
Through Tuesday, the Fed had bought about $253 billion in
Treasury debt, according to Morgan Stanley.
On Tuesday, Treasurys came under pressure, mostly from a host of
corporate bond sales that triggered heavy hedging activity,
analysts said.
GE Capital, a division of blue-chip conglomerate General
Electric Co. (GE), sold $6 billion, according to Informa Global
Markets. MetLife Global Funding (MET) sold another $1.5
billion.
European banks also issued billions in debt, including $2
billion from Royal Bank of Scotland (RBS), according to
Informa.