By Min Zeng
Investors sold Treasury bonds Wednesday as a labor-market report
brightened the U.S. economic-growth outlook, sapping demand for
safe assets.
In recent trade, the benchmark 10-year note's price fell by
10/32, extending the price loss to a second straight session. The
note's yield rose to 2.601%, according to Tradeweb. Bond yields
rise when their prices fall.
Private-sector employment in the U.S. increased by 281,000 in
June, according to the national employment report compiled by
payroll processor Automatic Data Processing Inc. and forecasting
firm Moody's Analytics. Economists had expected 210,000.
The report came before Thursday's nonfarm payrolls release, a
key gauge of employment and one of the factors influencing the
Federal Reserve's monetary-policy outlook.
"There is no doubt it is a very good number and the market is
now pricing in a better-than-expected NFP," said Jason Rogan,
managing director of U.S. government bond trading in New York at
Guggenheim Securities LLC. "The 24-hour window is creating a rush
to sell" Treasury bonds, he said.
Economists expect the U.S. economy added 215,000 jobs last month
following 217,000 new hires a month earlier. The unemployment rate
is expected to stay at 6.3%.
Dan Mulholland, head of U.S. Treasury trading at BNY Mellon
Capital Markets LLC, cautions the correlation has been "loose"
between the ADP and NFP reports.
Mr. Mulholland said if Thursday's report showed 300,000 jobs
growth, Treasury bonds would sell off more and the 10-year yield
would climb above 2.7%.
Traders and analysts said a strong employment report Thursday
likely raises anxiety over whether the Fed may raise interest rates
sooner than many investors currently expect. Economists expect a
strong rebound of the economy for the second quarter following a
2.9% contraction during the first three months of the year amid a
harsh winter.
Still, Mr. Mulholland said the Fed needs more evidence of strong
reports before altering the current path of dialing back monetary
stimulus at a measured pace. He cited tame wage pressure, which has
given the central bank some breathing room not to rush to raise
rates.
Many analysts expect the Fed to start raising rates at the
middle of 2015.
Fed Chairwoman Janet Yellen said last month that the central
bank may need to keep official interest rates low for an extended
period. Some analysts said the Fed would tolerate inflation running
slightly above its 2% target to promote stronger employment.
The 10-year Treasury yield, used to set interest rates for
global finances from U.S. home loans to debt sales by foreign
governments and companies, has dropped from 3% at the start of the
year.
Investors have piled into Treasury bonds due to uneven global
growth, geopolitical tensions in some countries and ultralow
official interest rates from major central banks. U.S. bonds offer
superior yields compared with their counterparts in Germany and
Japan.
Many bond bears believe that Treasury yields will rise in the
second half of the year, driven by stronger growth and higher
inflation. Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.
expect the 10-year note's yield to rise to 3% at the end of
December.
Write to Min Zeng at min.zeng@wsj.com