Treasuries Head for Steepest Weekly Decline This Year Before Jobs Report

Treasuries headed for their steepest weekly loss this year, lagging behind corporate bonds, before a government report that economists said will show U.S. job growth quickened in January.
The difference between the upper end of the Federal Reserve’s range for its benchmark interest rate and 10-year yields widened as investors demanded extra compensation on their long-maturity holdings in case inflation picks up. The spread increased to 3.30 percentage points, the most in eight months.
“The risk premium in the long end is probably going to rise,” said Roger Bridges, who oversees the equivalent of $16.2 billion as Sydney-based head of debt at Tyndall Investment Management Ltd., part of Australia’s largest insurer.
Benchmark 10-year notes yielded 3.56 percent as of 9:50 a.m. in Tokyo, according to BGCantor Market Data. The 2.625 percent security maturing in November 2020 traded at 92 10/32. The rate has increased 24 basis points this week.
An index of U.S. corporate bonds yielded 2.32 percentage points more than Treasuries as of yesterday, narrowing from 2.51 percentage points at the end of last year, according to Bank of America Merrill Lynch data.
Job Report
Treasuries dropped yesterday, pushing 30-year bond yields to a nine-month high, as investors prepared for today’s employment report.
Ten-year yields increased as data showed the fastest expansion since 2005 last month in service industries, which account for 90 percent of the U.S. economy. Investors are the most bearish in expectations for the next move in yields after the report than at any time since 2005, according to Royal Bank of Scotland Group Plc.
“There are bearish inclinations in the market,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 20 primary dealers that trade with the Fed.
The Labor Department will report today that U.S. payrolls increased by 146,000 last month, after a 103,000 gain in December, according to the median forecast of economists surveyed by Bloomberg News. The data may also show the unemployment rate increased to 9.5 percent from 9.4 percent, based on the surveys.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.