July 5, 2013 / 2:26 PM / 6 years ago

TREASURIES-Yields rise to two-year highs on strong jobs data

* Five-, seven- and 10-year yields highest in almost two
    * Strategists see Fed tapering as likely in September
    * Treasury to sell $68 billion in three-, 10-, 30-year bonds

    By Karen Brettell
    NEW YORK, July 5 (Reuters) - U.S. Treasuries yields rose
near two-year highs on Friday after data showed that employers
added more jobs in June than forecast, adding to expectations
that the Federal Reserve is closer to paring back its bond
purchase program.
    U.S. employers added 195,000 jobs to payrolls last month,
the Labor Department said, while the unemployment rate held
steady at 7.6 percent as more people entered the workforce.
    Benchmark 10-year note yields have increased by more than a
full percentage point since early May as the economy strengthens
and investors worry that the pullback in the Fed's unprecedented
stimulus will reduce demand for bonds and send yields higher.
    Many economists think the Fed is most likely to announce a
pullback in its bond purchases at its September meeting.
    Friday's data "would certainly put us on track for that
September time frame," said Kathy Jones, a fixed income
strategist at Charles Schwab in New York.
    Ten-year notes were last down 1-19/32 in price
to yield 2.70 percent, the highest level since August 2011.
    Treasuries weakened even after the European Central Bank and
the Bank of England on Thursday said they plan to hold rates
near zero for some time, helping support some European
government debt.
    The yield gap between 10-year Treasuries and equivalent
German bonds widened to around 96 basis points on
Friday, the widest level in seven years.
    New Treasury supply next week may add to weakness in
Treasuries, while investors will also focus on the release of
minutes from the Fed's June meeting on Wednesday.
    "I think from here going forward, buybacks and strength in
the market will be a selling opportunity," said Dan Mulholland,
managing director in Treasuries trading at BNY Mellon in New
    Mulholland sees 10-year notes as now likely to trade in a
range from around 2.45 percent to 2.85 percent.
    Five-year and seven-year notes yields, which are the most
sensitive to Fed interest rate policy, also jumped to their
highest levels since July 2011 on Friday.
    Five-year notes were last down 24/32 in price to
yield 1.58 percent and seven-year notes fell 1-8/32
in price to yield 2.16 percent.
    The Fed will buy between $1.25 billion and $1.75 billion in
bonds due from 2036 to 2043 on Monday as part of its ongoing
purchase program.
    The Treasury will sell $68 billion in new debt next week,
including $32 billion in three-year notes on Tuesday, $21
billion in 10-year notes on Wednesday and $13 billion in 30-year
bonds on Thursday.
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