Treasuries rose after a government report showed the U.S. added fewer jobs than forecast last month, raising speculation the Federal Reserve will need to provide more monetary stimulus to sustain the economic recovery.
U.S. 10-year notes extended a weekly gain as employers added 120,000 jobs in March and the jobless rate fell to 8.2 percent. Treasuries gained this week amid renewed speculation that the European debt crisis is worsening as rising borrowing costs make it more difficult to finance budget deficits in nations such as Spain.
“Concerns of a slowdown as we enter the middle part of the year are being increasingly validated, and that is a positive for Treasuries,” Carl Lantz, head of interest-rate strategy in New York at Credit Suisse AG, one of 21 primary dealers that trade with the Fed, said before the report. “This raises the likelihood that the Fed will move into an easing mode.”
The increase in payrolls, the fewest in five months, followed a revised 240,000 gain in February that was bigger than first estimated, Labor Department figures showed today in Washington. The March increase was less than the most pessimistic forecast in a Bloomberg News survey, in which the median estimate called for a 205,000 rise. Unemployment fell to the lowest since January 2009, from 8.3 percent.
The 10-year yield rose 10 basis points to 1.92 percent Feb. 3 after Labor Department data showed the economy added 200,000 jobs, 60,000 more than the consensus forecast. The yield fell 14 basis points to 1.99 percent on Sept. 2 after the government said there had been no job growth in August, compared with a forecast for a gain of 68,000 positions.
Even as economic data has suggested increasing strength in the economy, investors continue to price in some probability that the Fed may initiate a third round of asset purchases amid signs that the pace of the recovery remains subject to risks, including rising oil prices and continued turmoil in Europe.
“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of the Federal Open Market Committee March 13 meeting released April 3. That contrasts with the assessment at the January meeting, at which some Fed officials saw current conditions warranting additional action “before long.”
Yields fell earlier in the week as Spain’s borrowing costs climbed as the yield on the country’s 10-year bonds gained 13 basis points to 5.82 percent. The yield difference, or spread, between Spanish 10-year securities and similar-maturity German bunds rose to more than 400 basis points for the first time since Dec. 12.
Spain, the euro region’s fourth-largest economy, is in “extreme difficulty,” Prime Minister Mariano Rajoy said April 4, raising the likelihood of a bailout for the second time this week. ECB President Mario Draghi said April 4 that the economic outlook remained subject to “downside risks.”
Ten-year yields will increase to 2.51 percent by year-end, according to the average forecast in a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings.
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