Treasurys erase losses after ADP jobs data

NEW YORK (MarketWatch) � Treasury prices fell on Wednesday, pushing 10-year yields up from their lowest level since October, as stocks seemed content with U.S. data on private-sector payrolls and manufacturing.

Yields on 10-year notes 10_YEAR , which move inversely to prices, rose 5 basis points to 1.85%. A basis point is one one-hundredth of a percentage point.

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The benchmark security�s yield fell for the past six sessions, the longest streak since August.

Five-year yields 5_YEAR �increased 2 basis points to 0.73%, after closing Tuesday at their lowest level ever.

Yields on 2-year notes 2_YEAR �hovered at 0.23%.

Thirty-year bond yields 30_YEAR �added 8 basis points to 3.02%.

�We�re at the upper end of the range [in Treasury prices] and continue to see strength in the risk-on trade, which is a little negative to Treasurys,� said Mark MacQueen, co-founder of Sage Advisory Services, which oversees $9.5 billion in assets. �I don�t think a pullback here means anything. It�s certainly not a change in sentiment. Any rise in rates will be met with receptive buyers.�

Bonds wavered after ADP said private U.S. employers added 170,000 jobs in January � a little shy of what some economists expected. Markets may shrug it off because the data series hasn�t been a precise predictor of the Labor Department�s overall monthly employment report, which will be released Friday. Read story on ADP.

�We cover the ADP release because we have to, but it is always with an eye of suspicion,� said Eric Green, chief market economist at TD Securities. The firm�s forecast for nonfarm payrolls �does not change with this release and I suspect nobody on Wall Street will change theirs either. So, in effect, ADP is lower than expected but essentially on the screws for Friday.�

Bonds stayed down after ISM�s index on the U.S. manufacturing sector rose to 54.1 in January. See story on ISM.

Equities posted strong gains, with the S&P 500 Index SPX �up 1.3% in afternoon trading. Read about U.S. stocks.

Treasury bonds gained on Tuesday after a trio of U.S. economic reports came in worse than many economists expected. The main thrust for the month was Europe�s attempt to resolve its sovereign-debt crisis. Read about Treasury rally on Tuesday.Greece and its creditors have not agreed on a deal to reduce the country�s debt burden and avoid a default next month.

U.S. bond returns and the Fed

Treasurys returned 0.45% in January, according to an index compiled by Bank of America Merrill Lynch. It�s the third monthly positive return. Over the past 12 months, Treasurys have returned more than 10%.

Besides Europe, investors attribute the gains to the Federal Reserve�s actions, buying long-term Treasury debt under its �Operation Twist� program and more recently saying it could keep interest rates near zero for another three years.

�The Fed�s goal is clearly to keep bond yields relatively contained while the economy tries to accelerate,� said Bill Hornbarger, chief investment strategist at Moneta Group. �We�re going to be at relatively low yields for a relatively long time. Do you really want to split hairs at sub-2% on the 10-year?�

Also, traders Wednesday may be positioning for the government�s quarterly refunding auctions next week.

The Treasury Department will sell $72 billion in notes and bonds next week, maintaining the size of the auctions, which have been the same since November 2010. See story on Treasury auctions.

The department will auction $32 billion in 3-year notes3_YEAR , $24 billion in 10-year notes and $16 billion in 30-year bonds.