Treasury Futures Hold Last Week's Declines on Recovery Signs, Debt Sales

Treasury 10-year futures were near the weakest in almost a month as gains in stocks reduced demand for the safety of fixed-income assets amid optimism the U.S. economy will avoid another recession.

Ten-year contracts fell earlier, extending losses from last week when a report showed U.S. company payrolls increased by more than economists had forecast. Data this week will show initial jobless claims dropped, according to a Bloomberg survey of economists. The Treasury will sell a total of $67 billion in 3-, 10- and 30-year debt this week.

“The market has been too negative on the economy, with the fear of a double-dip,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, Netherlands. “In the longer run, Treasury yields should go up substantially.”

The implied yield on 10-year futures for December delivery was little changed at 3.18 percent as of 4:35 p.m. in London, based on electronic transactions at the Chicago Board of Trade. That’s the most since Aug. 9. The price was at 122 1/32.

Trading of Treasuries will be closed in the U.S. today in observance of Labor Day.

The yield on the benchmark 10-year note climbed five basis points last week to 2.70 percent, according to data compiled by Bloomberg. The yield climbed 22 basis points in three days to Sept. 3, the biggest increase since the period ended Dec. 22.

The note will probably yield about 3 percent in three months, Marey said. The median of 73 analysts and strategists’ predictions compiled by Bloomberg is for the yield to increase to 3.1 percent by year-end.

The MSCI Asia Pacific Index of shares climbed for a fourth day, rising 1.6 percent. Stock markets rose across Europe, with the Stoxx Europe 600 Index gaining 0.2 percent.

Private Payrolls

Private payrolls increased last month by 67,000 after a revised gain of 107,000 in July, the Labor Department said on Sept. 3. The median forecast of economists in a Bloomberg News survey was for 40,000 additional positions. Overall employment fell by 54,000 for a second month. The unemployment rate increased to 9.6 percent, from 9.5 percent, as more people entered the labor force.

The larger-than-expected gain in company hiring lowered the odds the Fed will seek more quantitative easing at its Sept. 21 policy meeting, according to Paul McCulley, a portfolio manager and partner at Pacific Investment Management Co., which operates the world’s biggest bond fund.

“The Fed can breathe a little bit easier,” McCulley said last week in an “In the Loop” interview on Bloomberg Television with Betty Liu. There’s “no compelling pressure to move to QE2,” McCulley said.

The number of Americans applying for jobless benefits last week fell to 470,000 from 472,000 the previous week, according to a Bloomberg survey before a Labor Department report Sept. 9.

The government will sell $33 billion in three-year notes, $21 billion in 10-year debt and $13 billion in 30-year bonds this week, the Treasury announced Sept. 2. The combined total is the smallest for the maturities since July 2009.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.

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