Treasuries rose, pushing 10-year note yields to a two-week low, on month-end demand for U.S. debt following yesterday’s closing for Hurricane Sandy and speculation the massive storm will trim economic growth.
Ten-year notes erased losses earlier today on buying to match adjustments in indexes used as performance benchmarks. The Federal Reserve bought $4.98 billion of Treasuries as part of its plan to bolster economic growth. The U.S. unemployment rate may have increased to 7.9 percent this month, the U.S. Labor Department is forecast to report Nov. 2, in its final jobs report before the Nov. 6 presidential election.
“The demand for quality is out there,” said Justin Hoogendoorn, a fixed-income strategist at Bank of Montreal (BMO) unit BMO Capital Markets in Chicago. “A number of indicators around the world are giving people reason to purchase Treasuries, from stocks being down to what’s going on in Europe, and you always get some buying around month-end.”
U.S. 10-year yields dropped three basis points, or 0.03 percentage point, to 1.69 percent as of 5:02 p.m. in New York, according to Bloomberg Bond Trader data. It touched the lowest level since Oct. 16. The price of the 1.625 percent note due in August 2022 gained 1/4, or $2.50 per $1,000 face amount, to 99 13/32.
The Standard & Poor’s 500 Index fell as much as 0.4 percent before closing little changed.
Treasuries have handed investors a 0.3 percent loss this month as of Oct. 29, and the three-month decline is 0.8 percent, the Bank of America Merrill Lynch data show. Government debt was set to deliver a third month of losses, the longest streak since the last quarter of 2010.
The Barclays U.S. Treasury index is projected to extend by 0.02 years for October, equaling last month’s move, according to the firm.
Treasury trading volume increased from Oct. 29 levels. ICAP Plc, the largest inter- dealer broker of U.S. government debt, said trading totaled $187 billion as of 3 p.m., the lowest at this time during the past 10 full trading sessions after falling to a 10-month low of $82 billion on Monday. The yearly average is $242.5 billion a day in 2012.
The Fed bought Treasuries maturing from November 2018 to August 2020 today as part of its program to replace $267 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to reduce borrowing costs further and counter rising risks of a recession.
The Treasury announced plans to sell $72 billion of notes and bonds next week, including $32 billion in three-year notes on Nov. 6; $24 billion in 10-year notes on Nov. 7; and $16 billion in 30-year bonds on Nov. 8.
Treasury reiterated today it expects to reach the $16.4 trillion federal debt limit “near the end of 2012,” as it announced plans for next week’s so-called refunding auctions.
The debt sales come as Congress contends with a so-called fiscal cliff, the more than $600 billion of federal spending cuts and tax increases that will automatically take effect at the start of next year unless Congress acts.
Sandy may cut U.S. economic growth as it keeps millions of employees away from work and shuts businesses from restaurants to refineries in one of the nation’s most populated and productive regions.
Reduced output in the world’s largest economy from storm damage may total $25 billion in the fourth quarter, according to Gregory Daco, a U.S. economist at IHS Global Insight. He said that could trim the fourth quarter pace of growth to between 1 percent and 1.5 percent, from the firm’s earlier estimate of 1.6 percent.
“Once the markets settle, all eyes will shift back to the elections,” William O’Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, one of 21 primary dealers that trade with the Fed wrote in a note to clients. “Daily momentum studies are favorable for lower yields, near term.”
The jobless rate climbed from a three-year low of 7.8 percent in September, according to a Bloomberg News survey of economists before the Nov. 2 report. Employers hired 125,000 workers, following an increase of 114,000 in September, according to another Bloomberg survey.
Business activity in the U.S. unexpectedly contracted in October for a second month, adding to signs manufacturing has retreated from its central role in the economic recovery.
A gauge from the Institute for Supply Management-Chicago Inc. rose to 49.9 from 49.7 in September, the group said today. A reading of 50 is the dividing line between expansion and contraction. The median estimate of 54 economists surveyed by Bloomberg was 51.
“The economic data was a little weaker this morning and we are getting month-end index buying,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “There is still a lot of uncertainty ahead with assessing the damage from the hurricane, the jobs number on Friday and the election next week, to underscore a bid.”
For all of 2012, Treasuries returned 1.9 percent as of Oct. 29, while bonds in an index of U.S. investment-grade and high- yield company debt gained 10.8 percent, according to Bank of America Merrill indexes. The MSCI All-Country World Index (MXWD) of shares gained 13 percent this year, including reinvested dividends and a loss of .38 percent in October.
Ten-year rates will climb to 2.04 percent by June 30 and to 2.33 percent by the end of 2013, based on a Bloomberg survey of economists, with the most recent projections given the heaviest weightings.
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