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By Bloomberg View

Treasury yields climbed to the highest compared with U.S. stock dividends in six months as Mohamed El- Erian said employment gains are bolstering expectations for the Federal Reserve to raise interest rates.

U.S. 10-year notes yielded 2.41 percent at the end of last week, or 40 basis points more than the Standard & Poor’s 500 Index dividend, the biggest premium since Nov. 24. Treasuries trading volume is picking up as yields increase.

Sovereign bonds slumped after a government employment report last week boosted speculation the Fed will increase borrowing costs in 2015, said El-Erian, who is the chief economic adviser at Allianz SE and a Bloomberg View columnist.

“We are bouncing back and the Fed is likely to hike this year,” he said June 5 in an interview with Bloomberg. “For that, it was a clear message: higher yields.”

Economic growth that’s strong enough to spur the central bank to raise interest rates is a mixed message for stocks, according to El-Erian. Shares have benefited from investors who are seeking higher returns than they can get from government bonds.

“The equity market is torn,” he said. “People realize that central banks have been the market’s best friend and they would like the Fed to remain ultra-loose. At the same time, they look and say, ‘You know what, we like the fact that fundamentals are getting better.’”

Treasury benchmark 10-year notes yielded 2.40 percent as of 12:48 p.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2.125 percent note due May 2025 was 97 18/32.

Quarterly Loss

U.S. government securities have fallen 2.3 percent this quarter, reflecting price changes and interest payments, according to data compiled by Bloomberg. The S&P 500 has returned 1.6 percent after accounting for reinvested dividends, the data show.

Payrolls climbed in May by the most in five months and worker pay accelerated, according to Labor Department data released June 5.

The amount of Treasuries traded through ICAP Plc, an inter- dealer broker of U.S. government debt, has picked up during the bond selloff. Volume averaged $390.7 billion a day from April 30 through June 5, according to ICAP. The figure compares with $326.9 billion for the first four months of the year.

Treasuries will be little changed through Dec. 31 as the economy improves, based on Bloomberg surveys of banks and securities companies. The S&P 500 will advance almost 7 percent, based on the surveys.