Selloff of US treasuries is likely to accelerate

Treasuries are having their worst start to a year in 2022 and there’s every prospect that Friday’s US payrolls data will cause the selloff to accelerate.

Economists predict the jobs report will show employers added 447,000 workers in December, according to a Bloomberg survey, but the so-called whisper number has already jumped to 500,000. The increase was driven by Wednesday’s consensus-busting ADP Research Institute data that showed US companies added the most jobs in seven months.

US government securities have slumped 1.4% over the past four days, based on the Bloomberg US treasury index, heading for the steepest opening week decline to a year in data going back to 1973. The benchmark 10-year yield has already climbed 21 basis points this week alone, about half the increase analysts are forecasting for the whole of 2022.

“A strong print will see the market factor in hikes/quantitative tightening even earlier,” wrote strategists at Mizuho International including Peter Chatwell. “We’d therefore prefer to be positioned for more equity downside, and for higher yields.”

Investors have been dumping treasuries on signs the Federal Reserve is turning increasingly hawkish amid the need to rein in inflation as the Omicron outbreak adds to price pressures rather than slowing economic growth. The selloff accelerated on Wednesday after minutes from the Federal Reserve’s December meeting spurred bets that the first rate hike since the pandemic would come as soon as March.

Traders sold two blocks of five-year treasury futures contracts expiring in March on Friday, pushing the equivalent yield to near 1.5%, the highest since February 2020.

Bonds shrugged off an unexpected jump in eurozone annual inflation to a fresh record of 5% in December, which puts pressure on European Central Bank officials who insist the current spike is temporary. German 10-year yields were steady at minus 0.06%, having touched their highest since 2019 this week.

Bloomberg News. More stories like this are available on bloomberg.com