By Min Zeng
The beleaguered U.S. Treasury bond market fell for a third
session in a row, pushing the benchmark 10-year yield closer to
test the 3% mark, a level it last traded at in July 2011.
Worries that the Federal Reserve is poised to pull back its
easy-money stimulus continue to spook bond investors. Bond yields
have soared from near a record low at the start of May as investors
shed bond holdings for fears that bond prices could keep falling
and yields rise further once the Fed cuts back on buying bonds.
Rising bond yields dilute the value of fixed income assets and
leave bond holders vulnerable to potential capital losses because
the interest incomes from owning a bond near historic low yields
are easily wiped out by a big drop in bond prices.
In recent trade, the benchmark 10-year note fell by 12/32 in
price, yielding 2.941%, according to Tradeweb.
The yield earlier hit 2.958% earlier, the highest level since
July 29, 2011, and has soared from this year's low of 1.61% on May
1.
Investors had piled into fixed income assets since the 2008
financial crisis as the Fed's bond-buying programs had sent bond
prices soaring. But one of the sharpest selloffs on record over the
past few months have blunted investors' appetites for bonds and
fueled record-pace redemption from the bond fund universe.
"Yields have increased primarily because markets reconsidered
their priors with respect to the outlook for monetary policy, which
previously saw the Fed staying accommodative in perpetuity," said
Tony Crescenzi, senior market strategist at asset management firm
Pacific Investment Management Co., home to the world's biggest bond
fund.
The selling pressure eased after a report showed the U.S.
private-sector added 176,000 new jobs in August. The data was
calculated by payroll processor Automatic Data Processing Inc. and
forecasting firm Moody's Analytics. The number was a tad lower than
the 178,000 forecast by economists, which stalled the yield's rise
to 3% for now.
A separate report pointed to improvement in the labor market.
First-time benefit claims, a proxy for layoffs, decreased by 9,000
to a seasonally adjusted 323,000 in the week ended Aug. 31.
The yield swings signal upcoming U.S. data remain a main driver
for the bond market. Investors now look to Friday's non-farm jobs
report, a broad gauge of U.S. jobs and one of the key datapoints
shaping market expectations on the timing for the Fed to reduce
bond buying. Concerns have grown that the Fed may announce its plan
to cut bond buying out of the Sept. 17-18 policy meeting.
Economists now expect the U.S. economy added 175,000 new jobs in
August, up from 162,000 in July. The unemployment rate is forecast
to stay unchanged at 7.4%, the lowest level since 2008.
Bond yields could fall if the jobs data disappoint and cause a
pullback in speculation that the Fed would announce a reduction in
bond buying later this month, traders said.
But a strong jobs report likely will cement expectations of a
cutback on bond buying from the Fed and the 10-year yield could
test 3% or even climb higher, traders said.
Write to Min Zeng at min.zeng@wsj.com