US Treasuries prices fell on Thursday as encouraging private-sector jobs data and European Central Bank support for Portuguese debt reduced worries about the economy and sovereign fiscal problems in Europe. Possible progress in Washington over raising the US debt ceiling also helped revive appetite for stocks and growth-oriented assets and reduced the appeal of bonds.
The ADP National Employment Report showed private employment grew by 157,000 jobs in June from a revised 36,000 increase in May. The median forecast among analysts polled by Reuters was for a 68,000 gain. The surprisingly strong ADP reading caused some economists to raise their forecasts for the US government's payroll reading for June, which will be released at 8:30 am Friday.
"Recently ADP has had a pretty strong track record, so in light of today's surprise we upped our forecast," said Carl Riccadonna, US economist at Deutsche Bank Securities in New York. Deutsche raised its outlook to employers having added 175,000 jobs in June from an original estimate of 100,000. The median of forecasts from analysts polled by Reuters is for the government to report 90,000 new jobs were added in the US in June, up from 54,000 new jobs in May.
The possibility of even a modest recovery in the labour market whetted investors appetite for higher-risk assets, and safe-haven government debt suffered, with benchmark 10-year Treasury noteslosing 12/32 in price to yield 3.16 percent, up from 3.11 percent late Wednesday. It is still below the six-week high of 3.22 percent set last week.
In addition to better-than-expected data, investors pared their safe haven bids for bonds as European officials voiced support of weaker eurozone nations and criticised the debt agencies that have slashed their credit ratings. ECB President Jean-Claude Trichet said on Thursday after the central bank raised interest rates by a quarter percentage point, as expected, that the ECB will suspend its credit requirement for using Portuguese debt as collateral.
This followed Moody's Investors Service's decision on Tuesday to downgrade Portuguese government debt to junk status. The move had ignited fears of a mass selling of the heavily indebted nation's bonds and a cut-off of funding access for its banks. In the United States, the Treasury as expected said it will sell a combined $66 billion in three-year, 10-year and 30-year debt next week. This equals the amount sold in June. The sales will be some of the last high-profile auctions prior to August 2, which Treasury Secretary Timothy Geithner has marked as the date when the US runs out of funding options if the $14.3 trillion debt limit is not increased.