NEW YORK: Yields on US Treasuries jumped to 25-month highs on Thursday as a stunningly strong report on the US services sector stoked another round of selling in a global bond market rout and reinforced the view that the Federal Reserve might announce a reduction in its bond-purchase stimulus in two weeks.
The report from the Institute for Supply Management, which showed services industries posted their fastest growth since December 2005 in August, lifted benchmark yields for a fourth straight session and closer to the critical 3 percent mark.
The ISM report came after yields retreated in reaction to a private report that raised doubts about the strength in domestic job growth in Friday's payrolls data.
Traders had braced for a possible above-forecast 200,000 hiring figure from payroll processor ADP, which would have raised expectations of a robust reading in the government's payrolls report to be released at 8:30 a.m. EDT (1230 GMT) on Friday.
Such a level of private job growth was perceived as a slam-dunk for the US central bank to dial back its third round of quantitative easing, or QE3, in a bid to support the economy.
However, the US companies that ADP tracks added 176,000 workers in August, slightly below the consensus view of 180,000 and a revised 198,000 increase in July.
"This number is not a definitive number for the Fed to taper. This makes some people worry about tomorrow's payrolls number, but I still think it will be a decent one," said Robbert van Batenburg, director of market strategy at Newedge USA LLC in New York.
Economists polled by Reuters forecast US employers added 180,000 jobs in August, leaving the unemployment rate unchanged from July at 7.4 percent, the lowest since December 2008.
Benchmark 10-year Treasury notes last traded down 12/32 in price, yielding 2.941 percent, up 4.3 basis points from late on Wednesday. The 10-year yield rose to a session high of 2.958 percent, a level not seen since July 2011.
Short- and medium-term maturities were hit hard again on fears the Fed might raise short-term rates not too long after i stops buying Treasuries and mortgage-backed securities.
The two-year note yield traded above 0.50 percent for the first time since June 2011. It last traded at 0.493 percent, up 2.4 basis points from late on Wednesday.
Investors also dumped foreign bonds, sending German and British 10-year government debt yields to their highest levels in 1-1/2-years and since July 2011, respectively.
Traders received other snapshots on US labor conditions on Thursday. The Labor Department said Americans filing for unemployment benefits fell to 323,000 last week, matching the level in the week of Aug. 11, which was the lowest reading since January 2008.
On the other hand, planned layoffs rose in August to 50,462, which was their highest level since February, Challenger, Gray & Christmas said.
On the supply front, the Fed planned to buy $2.75 billion to $3.50 billion in Treasuries due November 2020 to August 2023 at 11 a.m. (1500 GMT), which is part of its intended $45 billion in government debt purchases in September.
The Treasury Department was scheduled to announce its coupon-debt sales for next week. Analysts widely anticipated it will trim its three-year debt offering by $1 billion to $31 billion, while they forecast the Treasury will reopen prior 10-year and 30-year issues at $21 billion and $13 billion, respectively.
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