Treasuries were little changed before data that economists said will show U.S. added more than 100,000 jobs for a fourth month, the Labor Department’s last employment report before the Nov. 6 presidential election.
U.S. government debt handed investors a 0.6 percent loss in the three months through yesterday, according to Bank of America Merrill Lynch indexes, as demand for the safety of debt waned. The jobless rate, calculated differently from the number of positions gained or lost, rose to 7.9 percent from 7.8 percent, based on Bloomberg News surveys of economists. Two reports yesterday showed improvement in the U.S. labor market.
“The market will need a big number to move, given other uncertainties including the upcoming election,” said Luca Jellinek, head of European fixed-income strategy at Credit Agricole Corporate & Investment Bank in London. “We expect economic recovery in the U.S. to be gradual.”
The U.S. 10-year note yielded 1.72 percent at 7:11 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent security due in August 2022 was at 99 1/8. The rate rose three basis points, or 0.03 percentage point, yesterday.
The benchmark yield will climb to 2.25 percent by March 31, according to Credit Agricole. A Bloomberg survey of banks and securities companies projects 1.92 percent by the end of March and 2.06 percent by June 30, with the most recent projections given the heaviest weightings.
U.S. initial applications for jobless benefits dropped 9,000 to 363,000 last week, the Labor Department said yesterday. Companies added 158,000 workers in October, according to an industry report. The increase was higher than forecast, data from the Roseland, New Jersey-based ADP Research Institute showed. It was the first ADP report derived using a larger sample and new methodology.
Federal Reserve Bank of Boston President Eric Rosengren said the central bank should buy mortgage bonds until the jobless rate falls to 7.25 percent and hold the target interest rate near zero until hitting 6.5 percent unemployment.
“As long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases,” Rosengren said yesterday in a speech in Wellesley, Massachusetts.
The Federal Open Market Committee said on Oct. 24 it will continue buying $40 billion in mortgage-backed securities each month, aiming to reduce unemployment. It reiterated that it will probably keep its benchmark interest rate near zero at least through the middle of 2015.
The central bank is also swapping shorter-term Treasuries in its holdings with those due in six to 30 years. It plans to sell as much as $8 billion of debt maturing from February 2013 to April 2014 today as part of the program, according to Fed Bank of New York’s website.
Kevin Yang, head of bond investment in Taipei at Hontai Life Insurance Co., which has $6 billion in fixed-income assets, said he plans to trim his Treasury holdings before the employment report. While the economy is improving, yields will probably hold below 2 percent, he said.
“At 2 percent, a lot of buyers will come in,” Yang said. “The Fed will maintain low interest rates.”
Pacific Investment Management Co., which runs the world’s biggest mutual fund, favors inflation protection in the U.S., betting stimulus efforts around the world will stoke faster price increases.
“Central banks have implemented increasingly far-reaching policy measures and they are more willing to take inflation risk as a trade-off for growth and employment,” said Michael Althof, a senior portfolio manager in Munich. “Index-linked bonds are good assets to have, as longer-term we think the pressure for higher inflation is there.”
U.S. consumer prices increased 2 percent in September from a year earlier, based on the latest data from the Labor Department, meaning 10-year notes have a negative real yield.
The difference between 10-year yields and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for costs in the economy over the life of the debt, was 2.52 percentage points. The average over the past decade is 2.18 percentage points.
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