US Treasury yields rising as Fed tapering expected

The better-than-expected United States employment report for June sent Treasury prices down again last week.

Nonfarm payrolls increased by 195,000 in June, the Labor Department reported on Friday. This was better than the 165,000 increase estimated by economists surveyed by Bloomberg. Revisions added 70,000 jobs to the previous estimates for April and May.

The unemployment rate in June was unchanged from the previous month at 7.6 percent.

The news sent US Treasuries down. The yield on the US 10-year Treasury note rose to 2.74 percent last week, up 25 basis points from the previous week and hitting the highest level since August 2011.

The rising trend in Treasury yields in recent weeks has been driven by expectations of a reduction in debt purchases by the Federal Reserve. Fed Chairman Ben Bernanke had announced last month at a press conference after its monetary policy meeting that if incoming data are “broadly consistent” with its economic forecast, it would moderate the pace of debt purchases later this year.

A poll by Reuters on Friday showed that of 17 dealers who answered a question on the expected timing of the reduction in Fed purchases, 11 called for September, three said October, two said December and one said the first quarter of 2014.

According to Reuters, economists at Goldman Sachs and JP Morgan specifically cited the June employment report as a factor in bringing forward their expected timing of the slowing of Fed purchases.

However, Bill McBride pointed out in a post last week that all of the data released since the Fed's announcement in June of a possible slowing of debt purchases has been worse than its forecasts. He thinks that the economy will have to pick up pace before it can be said to be broadly consistent with those projections and allow the Fed to start to taper its debt purchases.