* U.S. services sector growth strongest in almost 8
* ADP jobs data raise doubts over a robust payrolls report
* U.S. seen trimming offering of 3-year note supply
* Fed buying $2.75 billion to $3.50 billion Treasuries
By Richard Leong
NEW YORK, Sept 5 Yields on U.S. Treasuries
jumped to 25-month highs on Thursday as a stunningly strong
report on the U.S. 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
Such a level of private job growth was perceived as a
slam-dunk for the U.S. central bank to dial back its third round
of quantitative easing, or QE3, in a bid to support the economy.
However, the U.S. 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
Economists polled by Reuters forecast U.S. 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 U.S. 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
On the other hand, planned layoffs rose in August to 50,462,
which was their highest level since February, Challenger, Gray &
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 .