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Treasuries Fall After Employment Jump Bolsters Economic Outlook

May 2 (Bloomberg) -- Treasuries snapped a three-day rally after a government report showed the economy added more jobs last month that forecast, a sign that economic growth is poised to accelerate as the Federal Reserve pares monthly bond-buying and considers when to raise interest rates.

U.S. 10-year note yields rose as the unemployment rate fell to 6.3 percent. The central bank said April 30 that “growth in economic activity has picked up recently.” Thirty-year bond yields fell to a 10-month low yesterday as weaker-than-forecast economic signals before the jobs report led traders to unwind hedges against higher interest rates.

“Everyone believes we’re getting confirmation of the upswing in the second quarter,” Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York, said before the report. “Once we do see the data begin to fulfill the Fed’s and everyone’s expectations for a better economy, then we really see potential for much higher yields quite rapidly.”

Benchmark 10-year yields rose seven basis points, or 0.07 percentage point, to 2.68 percent as of 8:32 a.m. in New York, based on Bloomberg Bond Trader prices.

Market Reaction

Treasury five-year notes gained the most since January on April 4 after a report showing U.S. employers added 192,000 jobs in March, trailing a forecast for a 200,000 increase. U.S. debt snapped a three-day losing streak on Feb. 7 after data showed employers added fewer jobs than forecast for a second month in January.

Futures prices put the likelihood the Fed will start raising borrowing costs by its June 2015 at 47 percent yesterday, based on trading on the CME Group Inc.’s exchange. The chances of a Fed increase are 68 percent by its July 2015 meeting, the data show.

Gains on Treasuries earlier this week came as Labor Department data released yesterday showed initial unemployment insurance claims increased 14,000 to 344,000 in the period ended April 26, the highest level since Feb. 22.

The economy added an average 194,000 jobs per month in 2013, the fastest pace of growth since 2005, Labor Department data show.

Fed View

The Fed said it will keep the benchmark interest rate close to zero for a “considerable time” after its bond-buying program ends. It reduced monthly debt purchases to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

At that pace, the stimulus program intended to push down borrowing costs for companies and consumers would end in December.

Gross domestic product grew at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, figures from the Commerce Department showed on April 30.

Jobless claims increased by 14,000 to 344,000 in the week ended April 26, the highest level since Feb. 22, Labor Department data showed. The median forecast in a Bloomberg survey of economists called for 320,000.

There were also signs of improvement in the economy yesterday. Manufacturing expanded in April by the most in 2014. Consumer spending had the biggest increase in almost five years.

The Bloomberg U.S. Treasury Bond Index rose 2.6 percent this year through yesterday, versus a 5.1 percent gain from bonds issued by governments in the euro region where growth is projected by economists to trail behind that of the U.S.

Treasuries will be closed May 5 in Japan and the U.K. for holidays. Trading will take place as usual in the U.S.

The Treasury will sell $29 billion in three-year notes on May 6, $24 billion in 10-year notes on May 7 and $16 billion in 30-year bonds on May 8.

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