The yield gap between 10-year Treasuries and German bonds (bunds) widened to as much as 1.2 percentage points.

(Bloomberg) — Treasuries fell, pushing 10-year note yields to the highest level in almost two weeks, amid speculation the U.S. economy is improving enough for the Federal Reserve to raise interest rates next year.

Yields extended increases after a private report showed hiring by American companies rose last month. Government data due April 4 will show the economy added 200,000 nonfarm jobs in March, the most in four months, based on a Bloomberg News survey of economists. Traders brought forward bets on when the Federal Reserve will raise interest rates after Chair Janet Yellen indicated in March the Fed may act in the middle of 2015.

“The perception is that nonfarm payrolls are going to be higher than people estimated,” said Thomas di Galoma, head of fixed income rates at ED&F Man Capital Markets in New York. “The market wants to sell off toward the 2.82 percent level on 10-year notes. That’s where we got to on the last nonfarm payroll number.”

Benchmark 10-year yields rose three basis points, or 0.03 percentage point, to 2.78 percent at 8:48 a.m. New York time, according to Bloomberg Bond Trader prices. It was the highest since March 20. The 2.75 percent security due in February 2024 fell 1/4, or $2.50 per $1,000 face amount, to 99 23/32.

While the yield has risen from 1.86 percent a year ago, it is less than the average over the past decade of 3.46 percent.

Company hiring

Companies in the U.S. added 191,000 jobs in March, figures from the ADP Research Institute in Roseland, N.J., showed today. The gain followed a revised 178,000 increase in February that was stronger than initially estimated.

Economists surveyed by Bloomberg called for a 195,000 advance. U.S. nonfarm payrolls increased by 200,000 jobs in March, economists in a Bloomberg survey forecast. Employers added 175,000 jobs in February and 129,000 in January.

“The long-term trend for Treasury yields is to the upside,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “If upcoming data are clearly showing the economy is improving, then yields can push more significantly higher.” BNP Paribas forecasts yields on 10-year notes will end the year at 3.25 percent, according to a Bloomberg News survey. The median analyst forecast is 3.34 percent.

Biggest loss

Treasuries due in more than 12 months fell 0.3 percent in March, the biggest loss among 26 debt indexes around the world compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greece was the best performer with a 5.4 percent rally.

The yield gap between 10-year Treasuries and German bonds (bunds) widened to as much as 1.2 percentage points. That’s the most since 2005, based on closing-market rates.

Treasuries fell yesterday as a gauge of manufacturing boosted wagers the recovery in the world’s biggest economy is gaining momentum.

The Institute for Supply Management’s index of U.S. manufacturing increased to 53.7 in March from 53.2 a month earlier, the Tempe, Arizona-based group reported. Readings above 50 indicate growth.

Weihan Chen, a bond trader at Hontai Life Insurance Co. in Taipei, said he bet against Treasuries a few weeks ago when yields were at 2.6 percent and 2.7 percent.

Chen said he’s considering reducing the position after the ISM report yesterday showed employment growth declined to the slowest pace since June.

‘Too optimistic’

“I think the market is now a little too optimistic about the labor report” set for April 4, Chen said. “Maybe I will start to take profits.” Hontai Life has the equivalent of $6.5 billion in assets.

Yellen said last month the Fed may end the bond-buying program it uses to support the economy this fall and increase borrowing costs six months after that. She said this week that “considerable slack” in labor markets showed that the central bank’s accommodative policies will be needed for “some time.”

The Fed has kept its target for federal funds, the rate banks charge each other on overnight loans, in a range of zero to 0.25 percent since 2008.