Treasury 10-year note yields fell for the sixth week in a row, matching the longest streak since June, as slowing growth and concern Europe’s debt crisis is worsening bolstered the refuge appeal of U.S. government debt.
Yields on the benchmark note dropped to the lowest level in two months as government reports showed the U.S. economy expanded less-than-forecast in the first quarter and weekly jobless claims rose. U.S. payrolls added fewer than 200,000 positions in April for a second straight month, data next week may show, adding to expectations from investors including Bill Gross that the Federal Reserve is far from pulling back on monetary stimulus.
“There is real concern that we will continue to see the economy roll over further after the good start the year had,” said Larry Milstein, managing director in New York of government- and agency-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Europe is still weak and the Fed is still on hold, all of which continues to keep Treasuries well bid.”
Yields on 10-year notes fell this week three basis points, or 0.03 percentage point, to 1.93 percent in New York, according to Bloomberg Bond Trader prices. They touched 1.88 percent yesterday, the lowest since Feb. 3.
Ten-year Treasuries are set to rise for the first month since January on concern Europe’s debt crisis was widening. U.S. bonds have returned 1.4 percent since March 31, according to a Bank of America Merrill Lynch index. The Standard & Poor’s 500 (SPX) Index of U.S. shares has handed investors a 3.4 percent loss over the same period, including reinvested dividends.
‘Below 2 Percent’
A rally in 10-year Treasuries next week would match the seven-consecutive-week rise ended in December 2008.
“As long as Europe continues to give us positive reasons to stay below 2 percent, then we’ll be below it,” said Steven Ricchiuto, chief economist in New York Mizuho Securities USA Inc., one of 21 primary dealers that trade Treasuries with the Fed. “I don’t think there’s anything in the domestic data to upset that.”
The U.S. economy expanded at an annualized rate of 2.2 percent in the first quarter, from 3 percent in the previous three-month period, Commerce Department figures showed yesterday in Washington. Economists surveyed by Bloomberg had forecast a rise of 2.5 percent.
Jobless claims fell by 1,000 to 388,000 in the week ended April 21 from a revised 389,000 the prior period that was higher than initially estimated, Labor Department figures showed on April 25 in Washington. The median forecast of 48 economists surveyed by Bloomberg News called for a drop to 375,000.
Employers in the U.S. may have added 165,000 jobs in April, following a 120,000 gain in March that was the fewest in five months, according to the median forecast in a Bloomberg News survey. The unemployment rate is forecast to remain steady at 8.2 percent, according to a separate survey.
The Federal Open Market Committee this week said “labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated.”
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing, or QE, from December 2008 to June to boost the economy. Chairman Ben S. Bernanke said he is prepared to do more to support the economy if needed.
While more monetary stimulus isn’t likely at the moment, a third round of asset purchases remain an option for the Fed if employment growth is sluggish, Pacific Investment Management Co.’s Gross said during a Bloomberg Television “Street Smart” interview with Trish Regan.
“The chairman has not ruled it out,” said Gross, who runs the world’s biggest bond fund. “If we see some weak employment reports over the next few months, then QE3 is back on.”
Trading volume dropped yesterday to $195.5 billion, from $246.6 billion the previous day, according to ICAP Plc, the world’s largest interdealer broker. The average in 2012 is $249 billion. Volume reached $439 billion on March 14, the highest since August.
Volatility dropped to the lowest since June 2007. Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, dropped to 65.2 basis points. It reached 93.3 basis points on March 20, the highest level this year. It has averaged 112.56 basis points for the past five years.
Valuation measures show Treasuries are at almost the most expensive level in seven weeks. The term premium, a model created by economists at the Fed, touched negative 0.66 percent. It reached negative 0.67 percent on April 23, the most expensive on a closing basis since March 6. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
S&P lowered Spain’s long-term sovereign-credit rating on April 26 by two levels to BBB+ from A, with a negative outlook. The nation’s budget trajectory is likely to worsen and the country may need to provide more fiscal support to banks, the ratings company said in a statement on April 27.
Spain, the fourth-biggest economy in the euro region, is scheduled to auction notes maturing in 2015 and 2017 on May 3. The nation’s 10-year bond yields climbed to 6.16 percent last week, the highest this year, and were at 5.90 percent yesterday.
“If you already have negative growth in lots of the economies, and it’s a situation where they will go with austerity measures to reduce debt burdens, it’s more of a negative impact as those measures start to take hold,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.
To contact the editor responsible for this story: Dave Liedtka at firstname.lastname@example.org