Rates rise after service sector report falls short of forecast; Treasury sets bond sales

Interest rates rise after service sector report

NEW YORK — Interest rates rose in the bond market Wednesday after services industries growth fell short of expectations last month.

The Institute for Supply Management said its index of service activity rose to 50.5 in January from a revised 49.8 in December. The January reading was below the reading of 51 analysts’ forecast, but it does signal growth. Economists were expecting a bigger jump.

Disappointment over the report pushed stocks modestly lower after two days of steep gains.

The yield on the 10-year Treasury note that matures in November 2019 rose to 3.71 percent from 3.65 percent late Tuesday. Its price fell 16/32 to 97 9/32. That yield is a widely used benchmark for consumer loans including mortgages.

Tom Porcelli, a market economist at RBC Capital Markets, said the yield on the 10-year note could rise as high as 3.8 percent if the government reports an unexpectedly strong improvement in the job market on Friday.

A rebound in job creation could signal stronger economic growth and a greater possibility of eventual inflation, both factors that would send bond prices lower and their yields higher.

In a precursor of the official Labor Department report, ADP, a payroll company, reported Wednesday that 22,000 private nonfarm jobs were cut last month. That was the fewest since employment started to decline in February 2008.

The yield on the two-year note maturing in January 2012 rose to 0.89 percent from 0.86 percent. Its price fell 2/32 to 99 31/32.

The Treasury’s announced sales of three-year and 10-year notes, as well as 30-year bonds were met with little enthusiasm. The government will sell $40 billion in three-year notes on Tuesday; $25 billion of 10-year notes Wednesday; and $16 billion in 30-year bonds on Feb. 11.

The yield of the 30-year bond that matures in November 2039 rose to 4.64 percent from 4.57 percent, while its price fell 1 5/32 to 95 22/32.

The yield on the three-month T-bill that matures May 6 rose to 0.09 percent from 0.08 percent. Its discount rate was 0.09 percent.

The cost of borrowing between banks fell fractionally. The British Bankers’ Association said the rate on the three-month loans in dollars — the London Interbank Offered Rate, or Libor — dropped to 0.24906 percent from 0.25031 percent.