Treasuries advanced, led by 30-year bonds, before a government report forecast to show the U.S. jobless rate increased last month, boosting the case for more monetary stimulus.
Benchmark 10-year notes pared a weekly decline as economists said German factory orders data today will add to evidence the euro region is heading for a recession amid the sovereign debt crisis, underpinning demand for safer assets. Treasuries still headed for a weekly loss as inflation expectations rose, reducing the purchasing power of the fixed payments from debt.
“The Treasury market will remain well supported around current levels,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. “We’d need a tremendous deviation from the consensus expectations to trigger a meaningful response in the market.”
The 30-year yield fell one basis point, or 0.01 percentage point, to 2.88 percent at 10:18 a.m. London time after rising to 2.88 percent, the highest since Sept. 25. The 2.75 percent bond due in August 2042 gained 1/4, or $2.50 per $1,000 face amount, to 97 14/32. The 10-year yield dropped one basis point to 1.66 percent, paring this week’s increase to three basis points.
U.S. unemployment rose to 8.2 percent in September from 8.1 percent in August, according to the median projection of economists surveyed by Bloomberg. Payrolls climbed by 115,000, less than the 139,000 average over the first eight months of the year, the report is also forecast to show. The Labor Department will issue the data at 8:30 a.m. in Washington.
The Federal Reserve unveiled a third round of so-called quantitative easing last month with open-ended purchases of $40 billion a month in mortgage-backed securities. The central bank bought Treasury and mortgage debt valued at $2.3 trillion in the first two rounds.
U.S. policy makers are battling an unemployment rate that has topped 8 percent since February 2009, the longest stretch in monthly records dating back to 1948. The world’s biggest economy has so far recovered about 4.1 million of the 8.8 million jobs lost in the wake of the 18-month recession ended in June 2009.
Demand for Treasuries will be sustained and yields will probably increase only “moderately” to 2 percent by year-end and 2.20 percent in the middle of 2013, UniCredit’s Purps said. That’s still more bearish than the median of 76 predictions from economists and strategists compiled by Bloomberg, which see the rate reaching 2 percent in June.
German factory orders declined 0.5 percent in August from the previous month, according to a separate Bloomberg survey. Industrial production in the euro area fell 0.3 percent in August from July, according to economist estimates compiled before the figure is released next week.
“The euro-region’s economy is undoubtedly on a path to further deterioration,” supporting Treasuries, said Shinji Kunibe, chief portfolio manager for fixed-income investment in Tokyo at Nissay Asset Management Corp., which oversees the equivalent of $65 billion.
The difference in yield between 10-year notes and similar- maturity inflation-linked bonds, a gauge of expectations for consumer prices, widened 17 basis points this week to 2.59 percentage points.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at firstname.lastname@example.org