Treasuries yields likely to stay stable

Treasury yields are likely to remain relatively stable ahead of Friday's US employment data, following an almost two-week sell-off, as traders have already priced in very bullish expectations. US government debt prices rose on Wednesday after data from ADP Employer Services showed that private employers added 201,000 jobs in March, in line with expectations but disappointing traders who had hoped for an even stronger report.
Some traders are expecting non-farm payroll data due on Friday will show employers added more than 250,000 jobs in March, far above the 190,000 expected by economists. "The ADP number today, although in line, may have reduced some of the bullish calls for a really strong non-farm payroll number on Friday," said Jason Rogan, director of US Treasury trading at Guggenheim Capital Markets in New York.
However, "the market is still anticipating a pretty strong nonfarm payroll number. I wouldn't be surprised if the market is short-covering going in the next two days in front of the number," he added. Benchmark 10-year note yields have risen to 3.46 percent from a three-month low of 3.19 percent on March 16. The notes, however, remain in the middle of their range from early February, when they rose as high as 3.77 percent.
Ten-year notes had tested technical yield support at around 3.52 percent in overnight trading on Wednesday. Yields have risen in the past two weeks as hawkish testimony from some Federal Reserve members raised concerns about how quickly the US central bank will move to remove stimulus, and in turn raise benchmark interest rates.
"If the economic data starts to point to things looking better, as we expect it to do, they will start pulling things off the table," said Mirko Mikelic, portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. That said, the economic recovery has been slow and continuing declines in housing and still-high unemployment are likely to hamper consumer spending, he added.
"It's going to take a much more extended period of time to recover from the low," Mikelic said. The Fed will "slowly start taking things away as they monitor the economy." The central bank is expected to end its $600 bond purchase program in June. Some investors are also concerned about whether the Fed will then begin to sell debt holdings, which as of last week included $1.31 trillion in Treasuries and $944 billion in mortgage-backed debt.
A $29 billion sale of new seven-year notes on Wednesday priced at a 1.7 basis point concession, the third consecutive auction tail, though some analysts said the rally ahead of the auction may have weighed on the results, said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. "It's time to not to get hurt in an auction, it's not time to get aggressive or try to move in front oof people with all the money. Seven-year notes last traded up 9/32 in price to yield 2.876 percent, after trading as low as 2.85 percent before the auction.