Treasury 10-year notes fell for a second quarter, the first back-to-back drop in two years, as investors sought higher-yielding assets amid improved economic data and a Federal Reserve pledge to maintain monetary stimulus.
Yields on the benchmark securities reached 11-month highs as the US unemployment rate unexpectedly fell in February and employers added more jobs than forecast. Payrolls also grew in March, a report next week may show.
The rise in yields cooled as the bailout of Cyprus and political turmoil in Italy renewed the haven appeal of US government debt.
"The US economic data was stronger in the first quarter than in the fourth, and it has confirmed the notion that while we are not into a roaring recovery, the US economy seems to be on somewhat better footing," said CRT Capital Group government bond strategist Ian Lyngen.
The US 10-year yield increased nine basis points, or 0.09 percentage point, from January through March to 1.85 per cent. It touched 2.08 per cent on March 8th, the highest since April 5th, 2012. The yield climbed 12 basis points from October through December. Its last two-quarter rise ended in March 2011.
Ten-year yields fell eight basis points this week in New York, according to Bloomberg bond trader prices. For the benchmark yield to rise to a Bloomberg survey's median year-end estimate of 2.25 per cent, "we will have to see the employment market improve, the situation in Europe subside and the end of the Fed's quantitative-easing program become apparent," Lyngen said.
US government securities have underperformed the Standard and Poor's 500 Index this month as Federal Reserve efforts to spur the economy boosted stocks. Government bonds returned 0.2 per cent through March 27th, according to a Bank of America Merrill Lynch index, versus a return by the stock index of 3.3 per cent including reinvested dividends.
Federal Reserve policy makers said March 20th after a meeting the central bank will continue buying bonds under the third round of its quantitative-easing strategy until there's a substantial improvement in the US labour market.
It purchases $85 billion a month of Treasury and mortgage securities to put downward pressure on borrowing costs. While the jobs market has showed improvement, the unemployment rate "remains elevated," they said.
They reiterated that the Federal Reserve would keep its key interest-rate target at virtually zero as long as unemployment remains above 6.5 per cent and inflation is projected at no more than 2.5 per cent. Treasury yields had climbed earlier in March after the Labour Department reported US nonfarm payrolls increased by 236,000 jobs in February.
Bloomberg
