Treasuries Close Notably Lower On Upbeat Economic Data

(RTTNews) - With a batch of largely upbeat U.S. economic data renewing concerns about the outlook for the Federal Reserve's stimulus program, treasuries moved notably lower during trading on Thursday.

Bond prices moved steadily lower over the course of morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.2 basis points to 2.979 percent.

The gain on the day extended a recent upward move by the ten-year yield, which reached its highest closing level in two years.

The weakness among treasuries came following the release of a slew of U.S. economic data, including a report from the Institute for Supply Management showing an unexpected increase by its index of activity in the service sector.

The ISM said its non-manufacturing index climbed to 58.6 in August from 56.0 in July, with a reading above 50 indicating growth in the service sector. The increase came as a surprise to economists, who had expected the non-manufacturing index to dip to a reading of 55.0.

Paul Dales, Senior U.S. Economist at Capital Economics, said, "Overall, this survey supports other evidence suggesting that the economic outlook is strong enough to warrant a tapering of QE3."

A separate report from payroll processor Automatic Data Processing (ADP) said private sector employment increased by 176,000 jobs in August compared to a downwardly revised increase of 198,000 jobs in July.

While the job growth came in slightly below economist estimates, the data still generated some optimism about the Labor Department's monthly jobs report, which includes both public and private sector jobs.

The Labor Department report, due to be released on Friday, is expected to show that employment rose by about 175,000 jobs in August compared to the addition of 162,000 jobs in July. The unemployment rate is expected to remain unchanged at 7.4 percent.

Jay Morelock, an economist at FTN Financial said, "If tomorrow's payroll report shows further improvement in the U.S. labor market, expect the Fed to lean on this data as they head into their September meeting, increasing the likelihood tapering will begin in September."

Trading on Friday is likely to be driven by reaction to the Labor Department's monthly jobs report and how it impacts the outlook for the Fed's asset purchase program.