Long-Dated Treasurys Fall as Stocks Gain

Longer-dated U.S. Treasurys fell Wednesday as higher stocks eroded any safe-haven bid, while the start of a new quarter had bond traders refocusing on worries over a deluge of pending government debt supply.

Shorter-dated Treasurys, which are more sensitive to Federal Reserve changes in interest rates, rose on comments from a central bank official that key interest rates may be on hold for years.

U.S. stocks rose more than 1 percent on hopes of improving world economic conditions.

"We have got a lot of strength in the first day of the second half in stocks, and that is certainly attracting money away from Treasurys," said David Dietze, chief investment strategist at Point View Financial Services in Summit, N.J.

Benchmark 10-year Treasury notes were trading 4/32 lower in price for a yield of 3.55 percent, up from 3.53 percent late Tuesday.

With the Treasury set to sell another round of coupons next week — including 10-year Treasury Inflation Protected Securities, three-year notes and 10-year notes — concerns again rose over whether the global appetite for U.S. government debt would continue unabated.

"Traders are bracing for an onslaught of supply to finance this massive deficit," Dietze said.

The front end of the Treasury curve was supported by comments late Tuesday from San Francisco Fed Bank President Janet Yellen, who said "it's not outside the realm of possibilities that the fed funds rate could stay at zero for the next couple of years."

The two-year note was trading 3/32 higher in price for a yield of 1.07 percent from 1.13 percent.

"The short end of the market is being propped up by Yellen's comments yesterday," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle.

A deluge of data on private sector jobs, manufacturing, construction spending and pending home sales painted a bit of a mixed picture for markets.

Bonds briefly pared losses after data from ADP Employer Services showed a larger-than-expected drop in private sector jobs in June.

ADP said U.S. employers cut 473,000 jobs in June, down from the 485,000 jobs lost in May but well above economists' forecasts for a reading of 393,000 private-sector jobs.

The Institute for Supply Management said the U.S. manufacturing sector shrank in June but at a slower pace than the prior month, while the government said construction spending fell to its lowest rate in more than five years in May.

Pending sales of previously owned U.S. homes rose slightly in May, according to the National Association of Realtors.

Investors are now looking ahead to Thursday's release of non-farm payrolls for June. The median of forecasts from economists polled by Reuters is for payrolls to have shrunk by 363,000 jobs last month from a contraction of 345,000 the month previous.

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