Treasury Yields Rise Most in a Month on U.S. Jobs, ECB
Treasuries fell, pushing 10-year yields up the most in more than a month, after data suggested U.S. job growth is accelerating and European officials announced plans to buy bonds to curb the region’s sovereign-debt crisis.
Ten-year note yields climbed from almost a one-month low as ADP Employer Services said companies added more workers than forecast and a government report showed fewer Americans filed applications for unemployment benefits. European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond-purchase program to regain control of interest rates in the euro region and fight speculation of a currency breakup.
“It’s two-thirds Europe, one-third ADP,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Federal Reserve. “It should calm the short-term fears about Europe, but there are still many concerns. It’s definitely a step in the right direction.”
The 10-year note yield climbed eight basis points, or 0.08 percentage point, to 1.68 percent at 5 p.m. in New York. It was the biggest jump since Aug. 3. The yield touched 1.54 percent on Sept. 4, the lowest level since Aug. 6. The price of the 1.625 percent note due in August 2022 dropped 3/4, or $7.50 per $1,000 face amount, to 99 1/2.
Ten-year yields reached a record low 1.38 percent on July 25, and rose to a three-month high 1.86 percent on Aug. 21. They will trade at 1.79 percent at year-end, according to a Bloomberg survey of economists in which the most recent projections are given the heaviest weighting.
Thirty-year bond yields rose nine basis points today to 2.8 percent, the highest level since Aug. 27.
The Treasury said it will auction $66 billion of notes and bonds next week: $32 billion of three-year debt on Sept. 11, $21 billion of 10-year securities on Sept. 12 and $13 billion of 30- year bonds on Sept. 13.
Companies in the U.S. added 201,000 workers in August, according to Roseland, New Jersey-based ADP. The median estimate in a Bloomberg survey projected a 140,000 increase. Initial jobless claims decreased by 12,000 to 365,000 in the week ended Sept. 1, the fewest in a month, the Labor Department reported today in Washington.
Labor Department data due tomorrow will show the U.S. added 130,000 jobs last month, trailing the 163,000 increase in July, economists in a Bloomberg survey forecast. The unemployment rate held steady at 8.3 percent, economists projected.
“Prior to the ADP number, people were probably of the mind that if it surprised, it would surprise to the downside,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “There may be a little more speculation that the number tomorrow could be better than expected, especially with this claims number.”
The ADP data may not translate to a higher-than-forecast increase in tomorrow’s payrolls report, TJ Marta, a Bloomberg analyst, wrote in a note. Of the 11 times since 2006 that the ADP data beat expectations by 60,000 or more, nonfarm payrolls missed estimates five times, he wrote.
Treasuries remained lower after the Institute for Supply Management’s non-manufacturing index climbed to a three-month high of 53.7 from 52.6 in July, the Tempe, Arizona-based group said today. The gauge covers about 90 percent of the U.S. economy, and readings above 50 signal expansion.
Bond yields tumbled last week as Fed Chairman Ben S. Bernanke signaled the central bank may buy more debt under quantitative easing to lower unemployment.
The policy-setting Federal Open Market Committee meets Sept. 12-13. Bernanke, speaking on Aug. 31 at a conference in Jackson Hole, Wyoming, said the costs of “nontraditional policies” appeared manageable when considered carefully. He said he wouldn’t rule out steps to lower a jobless rate he described as a “grave concern.”
The Fed purchased $2.3 trillion of securities from 2008 to 2011 in two rounds of the stimulus strategy known as quantitative easing.
The central bank’s favored bond-market gauge of inflation expectations, the five-year, five-year forward break-even rate, which shows how much traders anticipate consumer prices will rise during a period of five years starting in 2017, declined to 2.43 percent on Aug. 31. It was the lowest level since July 26. The average for 2012 is 2.54 percent.
After today’s selloff of 10-year Treasuries, investors should end a bet that the notes will continue to fall, and realize gains before tomorrow’s payrolls report, according to a client note from the primary dealer Credit Suisse Group AG. The firm retains its forecast that the yields will drop to 1.35 percent by year-end, New York-based strategists Carl Lantz and William Marshall wrote.
The Fed bought $1.8 billion of Treasuries today due from 2036 to 2042. The purchase is part of an effort called Operation Twist in which it is swapping shorter-term Treasuries in its holdings with those due in six to 30 years to put downward pressure on long-term interest rates.
U.S. government bonds returned 2.5 percent in 2012 through yesterday, Bank of America Merrill Lynch index data show. That compares with a 13 percent gain in the Standard & Poor’s 500 Index (SPX) of shares, including reinvested dividends.
The ECB’s bond-buying plan, called Outright Monetary Transactions, will focus on government bonds with maturities of one to three years, bank President Mario Draghi said. The ECB will only intervene in the secondary market if a country has asked Europe’s bailout fund to buy its debt on the primary market, ensuring strict conditions are agreed to, he said.
“‘We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area,” Draghi said.
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