Treasuries Decline on European Crisis-Response Optimism
Treasuries snapped two days of losses on concern European policy makers aren’t doing enough to resolve the region’s debt crisis and a report showed U.S. productivity fell more than initially estimated in the first quarter.
U.S. government debt also erased losses after Atlanta Federal Reserve President Dennis Lockhart said today that extending the central bank’s Operation Twist program is an “option on the table.” European Central Bank President Mario Draghi said officials will extend their offerings of unlimited cash as they try to head off risks stemming from the crisis. The ECB kept its benchmark interest rate at 1 percent.
“Draghi is offering nothing in here,” said David Ader, head of U.S. government bond strategy at CRT in Stamford, Connecticut. “The market is looking for action and ideas, not a repetition of stuff we already know. We know the risk scenarios -- now what are you going to do about it?”
The benchmark 10-year yield fell one basis point, or 0.01 percentage point, to 1.56 percent at 9:13 a.m. New York time, according to Bloomberg Bond Trader prices. Earlier it rose four basis points, or 0.04 percentage point. The yield declined to an all-time low of 1.4387 percent on June 1.
Ten-year yields dropped 29 basis points last week and 36 basis points in May.
The U.S. Labor Department’s measure of employee output per hour decreased at a 0.9 percent annual rate, after a 1.2 percent gain in the prior three months, revised figures showed today in Washington. Expenses per worker rose at a 1.3 percent rate and output grew 2.4 percent, less than previously estimated.
“Productivity is down and that’s poor; labor is down more,” CRT’s Ader said. “It’s not good for workers, but it’s good for the bond market.”
Lockhart of the Atlanta Fed, answering audience questions at an event in Fort Lauderdale, Florida, said the central bank “has the capacity to do more” with Operation Twist, which is set to expire at the end of this month.
The Fed is replacing $400 billion of shorter-term Treasuries in its holdings with longer maturities by the end of this month to keeping borrowing costs down. The central bank plans to buy as much as $2.25 billion of Treasuries due from February 2036 to May 2042 today as part of the effort, according to the Fed Bank of New York’s website.
Yields on benchmark 10-year notes climbed earlier above 1.6 percent for the first time four days. Federal Reserve regional bank presidents voiced opposing views yesterday over whether the central bank should step up record accommodation following the lowest monthly increase in U.S. payrolls in a year.
Chicago Fed President Charles Evans said in a speech in New York yesterday that “soft” U.S. economic data call for “extremely strong accommodation,” while Richard Fisher of Dallas said more easing through Fed purchases of bonds would be “pushing on a string.” James Bullard of St. Louis said there’s time to assess the economy and a policy change isn’t needed now.
After policy makers met in April, Chairman Ben S. Bernanke said the central bank may ease further should unemployment fail to make “sufficient progress towards its longer-run normal level.” Unemployment in May rose to 8.2 percent from 8.1 percent the prior month, and job growth slowed to 69,000, compared with 275,000 in January.
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