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Treasury yields at highest since June before service figures

Traders bet Fed will raise interest rates as the fastest employment growth in 3 years signals companies gaining confidence

Treasury yields at highest since June before service figures

Treasury yields were at the highest level since June, after the biggest two-week rout in prices this year, as economists said a report yesterday will show U.S. services industries are growing as the job market improves.
Traders added to bets the Federal Reserve will raise interest rates as the fastest employment growth in three years signals companies are gaining confidence. The U.S. is scheduled to sell US$8 billion of 10-year Treasury Inflation-Protected Securities yesterday, the first of four auctions this week totaling US$82 billion. A three-year sale today will be for a record- matching US$40 billion.
"Treasury rates will soar," said Kazuhito Miyabe, who helps oversee US$12 billion as head of foreign fixed income in Tokyo at Toyota Asset Management Co., a unit of the world's largest automaker. "Many investors may sell."
The 10-year note yielded 3.95 percent yesterday. in Tokyo, matching the highest level since June 11, according to data compiled by news agency. The 3.625 percent security due in February 2020 traded at 97 3/8.
Ten-year rates surged a quarter percentage point over the previous two weeks, the most since the period ended Jan. 1. They will climb to 4.20 percent by June 30, Miyabe said.
Trading was closed in the UK for a holiday. It is scheduled to take place as usual in the U.S. yesterday.
U.S. dollar forecasts
Barclays Capital said today it raised its forecasts for the U.S. dollar against the yen, citing higher U.S. yields. The U.S. dollar will strengthen to 95 yen in a month, 96 in three months and 98 in six months, Barclays said in an e-mailed statement. The previous estimates were 91, 93 and 96.
The greenback strengthened to as much as 94.79 yen yesterday, a seven-month high. Investors earn 2.59 percentage points extra yield by choosing 10-year Treasuries over same-maturity Japanese bonds, the widest spread since the end of 2007.
Treasury Secretary Timothy F. Geithner is delaying a report on global currency policies, a move that may curb Chinese demand for Treasuries.
Geithner is betting diplomacy will work better than U.S. pressure to get China to strengthen the yuan. In an April 3 statement, he announced the report's delay, scheduled for April 15, and urged China to move toward a more flexible currency.
China's policy of keeping the yuan at about 6.83 to the dollar has contributed to an increase in the country's reserves to US$2.4 trillion, the world's largest. That, in turn, has enabled China to become the largest foreign holder of Treasuries, with a total of US$889 billion in January.
'Space to relax'
The move will give China space to relax currency controls "without looking like they're kowtowing to U.S. pressure," said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut.
The U.S. economy is improving, White House economic adviser Lawrence Summers and former Fed Chairman Alan Greenspan both said yesterday on ABC's "This Week" program.
U.S. 10-year yields increased eight basis points on April 2 after the Labor Department reported U.S. companies added 162,000 workers in March, after a loss of 36,000 in February.
The Institute for Supply Management's index of non- manufacturing businesses, which make up about 90 percent of the economy, will show the fastest growth since 2007, according to a Bloomberg News survey. A separate report today may show fewer Americans signed contracts to buy previously owned homes in February, indicating real estate is struggling to recover.
Futures on the CME Group Inc. exchange show a 60 percent chance the Fed will increase the target for overnight lending between banks by at least a quarter percentage point by November, compared with 45 percent odds a month ago.
Discount rate
The Fed Board of Governors will probably raise the discount rate to 1 percent from 0.75 percent at a meeting yesterday, Andy Brenner, the global head of emerging market fixed income at New- York based brokerage Guggenheim Capital Markets, wrote in a note to clients.
The board increased the rate, charged to banks for direct loans, by a quarter percentage point to 0.75 percent on Feb. 18. It said the move would encourage financial institutions to rely more on money markets rather than the central bank for short- term liquidity needs.


Updated : 2021-06-24 17:25 GMT+08:00