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Treasury Yield Curve Near Steepest in Week, Data Shows Recovery Resilient
The yield difference between two- and ten-year Treasuries was near the largest in a week before a report likely to show orders placed with U.S. factories grew in July for the first time in three months.
Federal Reserve Bank of Dallas President Richard Fisher said yesterday he’s reluctant to expand the Fed’s balance sheet to spur the economy unless there is less “uncertainty” on fiscal and regulatory policies impeding job growth. Yields on the two-year note were still within five basis points of a record low before a government report tomorrow forecast to show employers eliminated jobs for a third straight month in August.
“A fair bit of bad news is priced in, the market’s a bit long and may be vulnerable to upside surprises in data and a back-up in yields,” said Su-Lin Ong, a Sydney-based senior economist at RBC Capital Markets Ltd., a unit of Canada’s largest lender. Higher Asian equities “may continue to put a little pressure on Treasuries.”
The benchmark 10-year note yield was at 2.57 percent as of 8:47 a.m. in Tokyo, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 traded unchanged at 100 14/32. The two-year note yielded 0.50 percent and fell to a record 0.4542 percent on Aug. 24.
The spread between the two securities, known as the yield curve, was at 207 basis points. It rose to 212 basis points on Aug. 30, the most since Aug. 23.
Factory orders increased 0.2 percent in July, after a 1.2 percent decline the previous month, economists in a Bloomberg News survey forecast before today’s Commerce Department report.
‘Puzzled’
The Institute for Supply Management’s manufacturing index rose in August to 56.3, beating the median estimate of economists in a separate survey, the Tempe, Arizona-based group reported yesterday. Readings greater than 50 signal growth.
“Puzzled at the strength in the ISM index, many investors are likely to await Friday’s jobs report before they begin to believe in the durability of the economic recovery again,” Anthony Crescenzi, market strategist and portfolio manager at Newport Beach, California-based Pacific Investment Management Co., wrote in a research note to clients. The firm operates the world’s biggest bond fund.
Treasury 10-year notes rallied last month by the most since the end of 2008 as minutes of the Federal Reserve’s Aug. 10 meeting released this week indicated “increased downside risks” to the outlook for economic growth and inflation.
Job Cuts
U.S. employers eliminated 100,000 positions in August after trimming 131,000 jobs in the prior month, according to the median forecast of economists before the Labor Department’s payrolls report tomorrow.
Comments from Fisher suggest Chairman Ben S. Bernanke may have difficulty rallying some Fed presidents behind further monetary easing.
“I would be reluctant to do so unless or until fiscal and regulatory initiatives are aligned with the needs of job creators,” Fisher said yesterday in a speech in Houston. “Otherwise, further accommodation might be pushing on a string” or result in higher inflation.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
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