Treasuries snapped a two-day gain before a government report forecast to show American employers added more than 200,000 jobs for a fourth month.
U.S. sovereign debt has handed investors a 1.1 percent loss this year while the nation’s corporate bonds rallied 3 percent as the economy showed signs of improvement, based on Bank of America Merrill Lynch indexes. Benchmark 10-year yields, which move inversely to the price, have climbed about half a percentage point from the record low set in September. There will be a “modest increase” in bond rates for the rest of 2012, according to Charles Schwab Corp.
“This is the first step in a gradual trend up for yields over the next couple of years,” said Marc Fovinci, who helps oversee $3 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. “The labor market has firmed up.”
Ten-year notes yields were little changed at 2.19 percent at 7:41 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2022 was little changed at 98 11/32. The record low yield was 1.67 percent on Sept. 23, versus the average of 3.86 percent for the past decade.
Fovinci said he plans to use the money from maturing Treasuries in his portfolio to buy government debt due in less than two years, favoring short-term securities that will fall the least in price if yields rise.
Boosting Corporate Holdings
Ferguson Wellman added to its holdings of corporate bonds this week, he said. It bought the debt of Home Depot Inc. (HD), the world’s largest home-improvement retailer, and Simon Property Group Inc., the biggest real estate company, he said.
The Bank of America index of U.S. corporate debt yields 2.80 percentage points more than Treasuries. The spread was as narrow as 2.69 percentage points on March 20, versus 3.95 percentage points six months ago.
Japan’s 10-year yields fell as low as 0.975 percent, the least since March 13.
Hiring in the U.S. increased by 205,000 in March after rising by 227,000 in February, according to the median projection of 80 economists surveyed by Bloomberg News. The jobless rate probably held at a three-year low of 8.3 percent, the survey showed.
“Interest rates will continue a modest increase over the rest of this year,” Charles Schwab, which is based in San Francisco and manages $199 billion, said in a report on its website yesterday. “We look forward to the time when rates begin to move up a bit, actually, because it’ll mean that the economy is healthier,” Rob Williams, the director of income planning, and Kathy A. Jones, the fixed-income strategist, wrote in the note.
Treasuries were scheduled to close today in Japan for Good Friday and didn’t open in the U.K., based on recommendations from the New York-based Securities Industry and Financial Markets Association. Trading will close at noon in New York.
Loss of Momentum?
The U.S. economic recovery may lose momentum as the Federal Reserve and the government withdraw support, said Hideo Shimomura, who helps oversee the equivalent of $73 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., which is part of Japan’s largest publicly traded bank.
The minutes of the Fed’s latest meeting issued this week showed policy makers see the improving economy reducing the need for new stimulus even as they keep their plan to hold borrowing costs near zero at least through late 2014. Tax reductions enacted by former President George W. Bush are scheduled to expire at the end of 2012, and $1 trillion in automatic cuts in government spending will begin in January.
“Yields will decline,” Shimomura said. “Markets are fearful of lost stimulus.”
Ten-year rates will be less than 2 percent at year-end, he said.
Treasuries advanced for a second day yesterday as speculation that the euro region’s sovereign-debt crisis is worsening spurred demand for the safest assets.
France sold 4.32 billion euros ($5.64 billion) of 10-year debt at an average yield of 2.98 percent, more than the 2.91 percent paid at the last auction on March 1. Borrowing costs for 5- and 15-year debt also rose, while they fell for the 30-year bonds.
Ten-year Treasuries yield 45 basis points more than same- maturity debt in Germany, reflecting demand for bunds because of the region’s sovereign crisis. The gap widened to 49 basis points on April 3, the most since January 2011.
Spain Prime Minister Mariano Rajoy said April 4 that his nation’s economic situation is one of “extreme difficulty.”
Investors betting on Treasuries are in the minority.
Ten-year yields will increase to 2.51 percent by year-end, according to the average forecast in a Bloomberg News survey of financial companies, with the most recent projections given the heaviest weightings.
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