US TREASURIES-Long-dated yields rise on Fed hike skepticism, higher German Bund yields

New York (Aug 5)  US Treasury yields rose on Wednesday, with longer-dated yields rising more than short-dated yields after weaker-than-expected U.S. jobs data kindled skepticism that the Federal Reserve would hike interest rates in September. Yields also followed European yields higher on strong data in the region.

Traders implemented a "curve steepener" trade by putting greater selling pressure on longer-dated Treasuries than on shorter-dated notes after data showed U.S. private employers hired 185,000 workers in July, the smallest increase since April.
 
The data reduced expectations for a strong jobs reading in the government's payrolls report due on Friday, and likewise reduced some expectations that the Fed would be able to raise rates as early as September.

"The steepening today is partially helped by the weaker-than-expected ADP data," said Robbert van Batenburg, director of market strategy at Societe Generale in New York.
 
The skepticism that the U.S. central bank would be able to move in September came despite comments from Atlanta Fed President Dennis Lockhart on Tuesday, who said it would take "significant deterioration" in the U.S. economy for him to not support a rate hike in September, according to the Wall Street Journal.

U.S. yields also followed European yields higher, which rose on the back of data showing euro zone business growth accelerated at the end of last month as companies largely put the Greek debt crisis behind them, suggesting the bloc's economic recovery is on track.

Benchmark 10-year German Bund yields rose to 0.76 percent, the highest level since July 23, from 0.64 percent the previous session.
 
"Strong data in Europe ... that's certainly weighing on the back end of Treasuries," said Edward Acton, in reference to 30-year Treasury prices. Bond prices move inversely to yields.

Data showing the pace of growth in the U.S. service sector surged in July to its best level in a decade, led by sharp increases in business activity, employment and new orders, also weighed on Treasuries prices and sent yields higher.

U.S. 30-year Treasury prices were last down 1-9/32 to yield 2.96 percent, from a yield of 2.89 percent late on Tuesday. Benchmark 10-year notes were last down 17/32 in price to yield 2.27 percent, from a yield of 2.21 percent late on Tuesday.

Two-year notes were last down 1/32 in price to yield 0.74 percent, from a yield of 0.73 percent late on Tuesday.

Source: Reuters