US debt prices fall on significant employment rise

City A.M. Reporter
NEWS of the huge jump in US private employment in December has caused US government bond prices to drop substantially.

Treasury prices sold off after ADP Employer Services said US private employers added 297,000 jobs, three times greater than forecast.

Prices reduced further after the Fed bought only $1.5bn in bonds ranging from 17 to 29 years in maturity. The central bank had said it would buy between $1.5bn and $2.5 bn in Treasuries on Wednesday.

“The lacklustre buyback had a negative effect on the marketplace," said Tom di Galoma, head of fixed income rates trading at Guggenheim Securities in New York.

The Fed purchases were part of a $600bn programme by the central bank to buy Treasuries and stimulate the economy.

Some analysts think the Fed could curtail the program if the economy improves enough before the purchases are completed.

The ADP jobs report offered a brighter picture of the U.S. labour market shortly before Friday's Labour Department survey of employers on non-farm payroll jobs in December.

“You cannot ignore the strength of this report. As a consequence of this report, we are taking our payrolls estimate higher for sure,”" said Tom Porcelli, US economist at RBC Capital Markets in New York.

The payrolls number is one of the most closely watched economic indicators, and the US unemployment rate heavily influences the Fed's monetary policy.

ADP said the December increase was the largest single gain since it began releasing the data in 2000.