Treasuries fell for a third day amid speculation the European Central Bank will announce details today of a plan to buy sovereign bonds of highly-indebted euro- region nations, dimming the allure of refuge assets.
U.S. 10-year yields have climbed from a one-month low as two ECB officials said yesterday President Mario Draghi’s bond- buying proposal involves unlimited purchases of euro-area government debt that will be sterilized. Demand for Treasuries was supported before an industry report forecast to show American companies hired fewer workers in August.
“Bond purchases by the ECB won’t resolve the debt crisis, but at least it does buy a lot more time and that’s important,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “The mood is pretty much risk-on and that might not bode well for safe assets. We have to see what the ECB says later today, and we can’t rule out the risk that the market will be disappointed.”
The 10-year yield rose two basis points, or 0.02 percentage point, to 1.62 percent at 7:51 a.m. in New York. The rate touched 1.54 percent on Sept. 4, the lowest since Aug. 6. The 1.625 percent note due August 2022 fell 5/32, or $1.56 per $1,000 face amount, to 100 3/32.
U.S. government bonds had 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. German securities handed investors a 3.5 percent gain during the same period, according to the indexes.
The ECB blueprint, which may be called “Monetary Outright Transactions,” will focus on government bonds rather than a broader range of assets and will target maturities of three years or less, according to central-bank officials briefed on the proposal who requested anonymity.
Europe’s central bank will sterilize its bond purchases by removing the same amount of money it spends from elsewhere in the system, ensuring a neutral impact on money supply, the officials said. Policy makers meeting in Frankfurt left the benchmark rate at a record low of 0.75 percent, as predicted by 28 of 58 economists in a Bloomberg survey.
The policy-setting Federal Open Market Committee meets Sept. 12-13. Federal Reserve Chairman Ben S. Bernanke, speaking on Aug. 31 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.”
U.S. corporate employment rose by 140,000, the least since May, according to a separate Bloomberg survey of economists taken before ADP Employer Services announces the figure today. Labor Department data tomorrow are forecast to show payrolls increased by 127,000 jobs in August, fewer than the 163,000 positions added in July.
“Speculation will increase that the Fed eventually undertakes a third round of quantitative easing if the payroll figure is within the market consensus,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co. in Tokyo, which oversees about $76 billion. “That’s more likely to weigh on Treasury yields.”
The Fed bought $2.3 trillion of mortgage and Treasury debt between 2008 and 2011 in two rounds of the stimulus strategy known as quantitative easing.
The U.S. central bank is scheduled to buy as much as $2 billion of Treasuries today due from February 2036 to August 2042 as part of so-called Operation Twist, a program to swap shorter-term securities in its holdings with longer-term debt to put downward pressure on borrowing costs.
The Treasury will announce today that it will auction $32 billion of three-year notes on Sept. 11, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on Sept. 13, according to Wrightson ICAP LLC, an economic advisory company based in Jersey City, New Jersey.
Volatility dropped yesterday for the first time in four sessions. Bank of America Merrill Lynch’s MOVE index, which measures price swings based on Treasury options, slid to 67.1 basis points from 68.7 on Aug. 31. The average over the past 12 month was 83.1.
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