Treasury 30-Year Bonds Advance for Sixth Day as Commodities, Stocks Tumble

Treasury 30-year bonds gained for a sixth day, the longest winning streak since December 2008, as a plunge in commodities and stocks and a rise in weekly jobless claims eased concern inflation is accelerating.

Yields on benchmark 10-year notes fell to a six-week low and rates on six-month bills touched a record for a fourth consecutive day before a report tomorrow that’s forecast to show job growth slowed in April. The premium investors demand to hold Treasuries instead of 10-year inflation-protected debt dropped to the lowest in a month. The Federal Reserve purchased $1.9 billion in Treasuries maturing from August 2028 to February 2041. The Standard & Poor’s 500 Index dropped 1.2 percent.

“Commodities and other assets are coming off, and some of that money is coming back into the Treasury market,” said Thomas Tucci, head of U.S. government bond trading at Royal bank of Canada’s RBC Capital Markets unit in New York, one of 20 firms that trade directly with the Fed. “The economic forecasts have been pulled back dramatically. Guys have been caught offside.”

The yield on the 30-year bond fell seven basis points, or 0.07 percentage point, to 4.26 percent at 5:01 p.m. in New York, according to Bloomberg Bond Trader prices. It touched 4.25 percent, the least since Dec. 7. The 4.75 percent security due in February 2041 rose 1 5/32, or $11.56 per $1,000 face amount, to 108 9/32.

Notes, Bills

The 10-year note yield fell seven basis points to 3.15 percent, after touching the lowest since March 17. Six-month bill rates traded at 0.06 percent after touching a record low 0.05 percent.

Commodities dropped the most in almost two years, paring this year’s gains to 10 percent, on speculation that economic growth will slow.

The Standard & Poor’s GSCI Index of 24 raw materials fell as much as 5.9 percent to 688.25, the biggest drop since June 22, 2009. The gauge has retreated for four days, the longest losing streak since mid-March. Silver, crude oil and heating oil led the declines.

“The professional traders misread the tea leaves and thought the economy was going to turn the corner,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “This economy is not turning around anytime soon, so it’s curtailing inflation. You go into a safety-type trade.”

The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, decreased to 2.47 percentage points, the narrowest since March 31. It widened to 2.67 percentage points on April 11, the most in three years.

Inflation Factor

TIPS are intended to provide a hedge against rising consumer prices. The securities rise or fall in value tracking changes in the consumer price index calculated by the Labor Department. Inflation adjustments will be added to the notes’ principal and be payable at maturity.

Crude oil for June delivery lost as much as 10.1 percent to $98.25 a barrel on the New York Mercantile Exchange. Silver for July delivery in New York fell as much as 9.6 percent to a one- month low of $35.60 an ounce.

“This is more a correction in commodities as the market comes to grips that economic growth may be a bit weaker,” said Anthony Chan, chief economist in New York at JPMorgan Chase & Co.’s private wealth management unit.

Debt Returns

Government debt rallied last month as Fed Chairman Ben S. Bernanke signaled on April 27 that the central bank will maintain its record stimulus when it ends purchases of government securities. Treasuries have returned 0.3 percent this month after a 1.2 percent gain last month, according to Bank of America Merrill Lynch data.

Fed Bank of Minneapolis President Narayana Kocherlakota said it would be “desirable” to lift the target for the benchmark U.S. interest rate by a “modest amount” this year, based on his inflation forecast.

The Federal Open Market Committee “should raise the fed funds rate by around 50 basis points” if core inflation rises by 1.5 percent this year, he said today in remarks prepared for a speech in Santa Barbara, California. “Under my baseline forecast, it would be desirable for the FOMC to raise the fed funds target interest rate by a modest amount toward the end of 2011,” said Kocherlakota, who votes on monetary policy.

FOMC Votes

Bernanke and his colleagues on the FOMC said last week that the economy, which has added an average of 149,000 jobs a month during the past six months, is recovering at a “moderate pace.” Policy makers have held the target rate for overnight lending between banks at zero to 0.25 percent since December 2008 and aim to complete $600 billion of Treasury purchases by the end of June.

Applications for jobless benefits jumped by 43,000 to 474,000 in the week ended April 30, Labor Department figures showed today. A spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge, a Labor Department spokesman said as the data was released.

Employers added 185,000 jobs in April after an increase of 216,000 positions in the previous month, according to the median forecast of 84 economists in a Bloomberg News survey. The Labor Department’s payrolls report tomorrow may show unemployment held at 8.8 percent, according to a separate survey.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

7:25

May 5 (Bloomberg) -- William O'Donnell, head U.S. government bond strategist at RBS Securities Inc., talks about the outlook for U.S. Treasury yields. O'Donnell also discusses the outlook for tomorrow's non-farm payrolls report and the U.S. budget deficit. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

1:43

May 5 (Bloomberg) -- Federal Reserve Bank of Boston President Eric Rosengren says the economy isn't gowing fast enough to achieve the central bank's goals of full employment and stable prices, and that "nothing's off the table" if the outlook deteriorates. Sara Eisen reports on Bloomberg Television's "InsideTrack." (Source: Bloomberg)