US Treasury yields jumped on Wednesday, with the two-year yield hitting its highest levels in more than 7-1/2 years, as a strong gain in US private-sector jobs in February cemented expectations that the Federal Reserve would raise interest rates next week. Longer-dated yields reached their highest since December before retreating due to a strong 10-year note sale.
"Today's move was driven by ADP. The market wasn't expecting this strong of a number," said Subadra Rajappa, head of US rates strategy at SG Corporate & Investment Banking in New York. US companies added 298,000 workers in February, the biggest monthly gain since December 2015 and far above the 190,000 increase forecast by economists polled by Reuters.
Medium- to long-dated Treasury yields reached their highest levels since December after the ADP report. The 10-year Treasury yield hit 2.583 percent, last seen on December 20, before easing to 2.554 percent, up over 4 basis points from late on Tuesday, according to Reuters data. The two-year Treasury yield, which is especially sensitive to traders' views on Fed policy, rose to 1.378 percent, the highest since August 2009. It was last at 1.354 percent, up 2 basis points from late Tuesday, Reuters data showed.Interest rates futures implied traders saw an 86 percent chance of a rate hike next week, compared with 82 percent at Tuesday's close, according to CME Group's FedWatch program.
The bond market selloff slowed due to heavy demand at $20 billion auction of 10-year Treasuries, part of this week's $56 billion in coupon-bearing government debt. The Treasury Department was scheduled to sell $12 billion of a prior 30-year bond issue at 1 pm (1800 GMT) on Thursday.
Looking ahead, investors await possible clues from the European Central Bank on its over 1 trillion euro bond purchase program after policy-makers meet on Thursday. "Our view is that the ECB will not say much because while the economy has done better, there's no incentive to go ahead and spook the market," said Jason Celente, senior portfolio manager at Insight Investment in New York.
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