NEW YORK (AFX) - U.S. Treasury prices fell sharply Wednesday following a report that suggested robust hiring levels in June.
At 5 p.m., the 10-year Treasury note was down 18/32 from its level at 2 p.m. EDT Monday. Its yield, which moves in the opposite direction, rose to 5.22 percent from 5.15 percent.
The 30-year bond was down 29/32. Its yield rose to 5.27 percent from 5.20 percent.
The 2-year note was down 4/32, yielding 5.24 percent, up from 5.17 percent.
Yields on 3-month Treasury bills were 5.01 percent as the discount was virtually unchanged at 4.90 percent.
The Automated Data Processing and Macroeconomic Advisers report estimated non-farm employment grew by 368,000 new jobs in June. That was a finding well above forecasters' pre-existing estimates, which pegged hiring gains at 170,000, which would be a respectable advance after tepid gains the last couple of months.
The bond market cratered on the report because it suggests that the Federal Reserve may have to continue to raise interest rates. To be sure, most economists were already expecting another rate hike, but many traders had thought the odds the Fed will stand steady on rates is relatively high. The data call that view into question.
'It really has stirred things up here ... it's very much out of sample with regards to any of the economic forecasts that has been out there and as such, the market is rapidly reassessing its Fed expectations,' said Jason Evans, head of government trading at Deutsche Bank.
Evans said that with the Fed relying on a slower economy to take the edge off the recent uptick in inflation, it is hard to see how the Fed could pause at its next policy-setting meeting in August if the Labor Department's June non-farm payrolls number, which will be released Friday, mirrors the ADP report.
'You can never say never, but (if payrolls comes in strong) the hurdle then is very high for the Fed not to move' next month, he said.
By mid-morning, fed funds futures contracts for August were pricing in around an 80 percent chance of an August fed funds rate hike, from just above 60 percent earlier, Evans said.
In the wake of the ADP data, a number of economists increased their estimates of the government's June payrolls data.
In other news unfavorable to the Treasurys market, the government said factory orders rose by 0.7 percent in May, which was above the 0.3 percent gain economists had expected.
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