NEW YORK: US Treasury debt yields hit seven-month highs on Wednesday, bolstered by a solid US private sector employment report for May and gains in German bond yields after the European Central Bank raised its inflation forecast for this year. Yields on ten-year German Bunds jumped to 0.89 percent, the highest since late October last year.
"I think the big story is we are trading off as Europe leads the way down (in price)," said Ian Lyngen, senior government bond strategist, CRT Capital in Stamford, Connecticut.
ECB President Mario Draghi on Wednesday reaffirmed the bank's commitment to quantitative easing, but what caught the market's attention was the upward revision in inflation forecasts.
After leaving interest rates at a record low 0.05 percent, the ECB raised its inflation forecast to 0.3 percent for this year, having previously put it at zero, saying its trillion-euro-plus asset buying program was paying off but had to be seen through.
"All in all, the ECB's quantitative easing has arrested deflation risk but it remains cautious on the success of its current stimulus measures with respect to addressing downside risks to medium-term stability," Lena Komileva, chief economist, director at G+ Economics in London.
An US private sector employment report also underpinned Treasury yields.
Data showed US private employers added 201,000 jobs in May, compared with a downwardly revised 165,000 jobs in April.
The report by ADP payroll processor showed the jobs increase was largest since January.
The jobs data helped push US Treasury yields higher.
In afternoon trading, benchmark US 10-year notes , fell 29/32 of a point in price to yield 2.369 percent. Ten-year-yields hit a seven-month peak of 2.3880 percent.
At one point the ten-year was down a full point in price.
US 30-year Treasuries were last down 1-23/32 points in price to yield 3.110 percent. Thirty-year bond yields matched a three-week high of 3.1280 percent.
A report showing that the pace of growth in the US service sector had slowed in May hardly made a dent on U.S yields.
The Institute for Supply Management said its services index fell to 55.7 from 57.8 in April. Analysts were looking for a reading of 57.0 in May, according to a Reuters survey.
Markets took in stride the Federal Reserve's Beige Book report showing US economic activity expanded from early April to late May and that growth was expected to continue at a "modest" to "moderate" pace.
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