BOND REPORT: Treasury Yields Rebound After Raft Of Bullish Economic Data

10-year Treasury yield edges up from 2.20% level

Treasury yields recovered Thursday after a stronger-than-expected reading on private-sector jobs growth that came a day ahead of the more closely-watched non-farm payrolls numbers .

The yield on the 10-year Treasury note added 1.9 basis points to 2.217%, after falling to 2.198% in Wednesday's session, the second lowest yield in a year. Bond prices move inversely to yields; one basis point is one hundredth of a percentage point.

The yield for the two-year note gained 2.0 basis points to 1.298%, snapping a five-day streak of declines, while the 30-year bond, or the long bond, added 1.1 basis points to 2.870%.

Yields climbed as high as 2.242% in morning trading after payrolls processor ADP reported that private-sector employment grew by 253,000 in May (http://www.marketwatch.com/story/private-sector-job-growth-rebounds-to-rip-roaring-pace-in-may-adp-says-2017-06-01), beating the Econoday consensus expectation of 170,000 (http://www.marketwatch.com/story/private-sector-job-growth-rebounds-to-rip-roaring-pace-in-may-adp-says-2017-06-01). The healthy job numbers could stoke inflation expectations, which can have a corrosive effect on bonds' fixed interest payments.

Although the faster pace of hiring is unsustainable with an unemployment rate at a multiyear low of 4.4%, it could spur hopes for a repeat performance in the non-farm payrolls report on Friday as the two numbers are historically correlated. But their close ties have faded recently.

""This was a definitely positive number by ADP, but remember these things are subject to some revision and the two haven't been in sync necessarily," said Rick Keller, a financial advisor at First Foundation.

Money managers also gave attention to an increase in initial jobless claims by 13,000 to 248,000 in the week ending May 27 (http://www.marketwatch.com/story/jobless-claims-climb-to-5-week-high-of-248000-2017-06-01), outpacing forecasts of economists surveyed by MarketWatch. The less volatile four-week average rose to 238,000, suggesting a healthy jobs market. Other data released included May's purchasing managers index numbers (which%20can%20have%20a%20corrosive%20effect%20on%20bond%e2%80%99s%20fixed%20interest%20payments.), edging up to 54.9 points. Any reading above 50 represents an expansion.

But the raft of solid economic data and a rally in equities couldn't prevent yields from paring back early gains by the afternoon. The S&P 500 index climbed 0.76% to reach a record high of 2,430 points (http://www.marketwatch.com/story/us-stocks-close-at-records-after-solid-gains-2017-06-01). Stocks and bonds move against each other as they sit at opposing poles of perceived risk.

Traders blamed the unpredictable rate movements on thin volume, pointing out yields would tend to rise in anticipation of a near-certain June rate hike.

"The markets are in a very tight range and there's very little risk being taken. There's no flows at all," said Charles Comiskey, head of trading at Scotiabank.

Fed. Gov. Jerome Powell said the central bank's $4.5 trillion balance sheet could be halved (http://www.marketwatch.com/story/feds-powell-balance-sheet-may-eventually-be-halved-from-current-levels-2017-06-01)from current levels by 2022. A reduction of the Fed's portfolio can take away a significant buyer from the Treasurys market, cutting demand for U.S. government paper and lifting yields.

"Powell speaks relatively infrequently on policy, but when he does he tends to be a very strong barometer of the thinking of the [board of governors]," wrote Thomas Simon, senior money market economist at Jefferies.

(END) Dow Jones Newswires

June 01, 2017 17:05 ET (21:05 GMT)