Treasury yields rose to nine-month highs after a government report showing gains in payrolls last month added to signs the U.S. economic recovery is gaining traction, sapping the securities’ haven appeal.
Yields on benchmark 10-year notes rose for a second week and stocks surged as January’s jobs increase was supported by upward revisions in the two prior months. Break-even rates on 30-year inflation-protected securities, or how much investors estimate consumer prices will rise over the life of the securities, touched the highest level since September.
“We have settled at higher yields as the market is suspicious of these low bond yields in an environment where risk assets are rallying,” said Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York. “The data has been generally mixed, but the market is focusing more on positive indicators of moderate strength than negative numbers.”
Ten-year note yields rose three basis points, or 0.03 percentage point, to 2.02 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. The yield reached 2.04 percent, the highest since April 13.
The 30-year bond yield rose as much as six basis points to 3.24 percent, the highest since April 5.
The Dow Jones Industrial Average rose climbed above 14,000 for the first time since 2007, while the Standard & Poor’s 500 Index jumped 1 percent to return to a five-year high.
The difference between rates on 30-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, widened to as much as 2.63 percentage points, the most since Sept. 17. The average over the past decade is 2.48 percentage points.
U.S. employers added 157,000 jobs last month following a revised 196,000 advance in December and a 247,000 surge in November, Labor Department figures showed. January’s increase was less than the advance of 165,000 that was the median forecast of 90 economists surveyed by Bloomberg.
Yields fell earlier as an increase in the unemployment rate to 7.9 percent soothed concern that the Federal Reserve will start winding down purchases of U.S. government debt. A survey projected the jobless rate to hold steady at 7.8 percent.
“This job’s figure today indicates that the engine of the economy is revving, but the car isn’t going anywhere,” said Thomas di Galoma, a managing director at Navigate Advisors LLC, a brokerage for institutional investors in Stamford, Connecticut. “There’s a bearish stance that rates will rise, and this number today has kind of tempered the feeling that rates need to rise substantially.”
The economy had added an average of 153,000 people a month to nonfarm payrolls in 2011-2012, Labor Department data show. The jobless rate had stayed above 8 percent since February 2009 until it broke the trend in September.
“Steady to higher participation rate suggests unemployment a long time away from 6.5 percent,” Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., wrote in a Twitter message. “Sell long-term bonds, own 5-7 yr maturities.”
U.S. government debt gained Jan. 30 after the Commerce Department said the U.S. economy unexpectedly shrank in the fourth quarter and the Fed reiterated its commitment to asset purchases to push down yields and lift growth.
The Federal Open Market Committee said in a statement that growth, while slowed by “transitory factors,” faces “downside risks” even after strains in global financial markets have eased. The expansion will pick up and unemployment will fall in response to “appropriate policy accommodation,” Fed officials said in a statement after a two-day meeting.
“Certainly any risks of recession have retreated, but the reality is we are still muddling along,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “This week’s data -- from the jobs report, weaker gross domestic product and lower inflation prints -- buys the Fed more time to act.”
Fed policy makers said in the statement they may end their $85 billion monthly bond purchases sometime in 2013, with members divided between a mid-or end-of-year finish.
Fed Bank of St. Louis President James Bullard, an advocate for slowing stimulus, said today that U.S. job growth in the past three months has been “an encouraging sign.”
At its December meeting, the FOMC announced Treasury purchases of $45 billion a month in addition to $40 billion a month of mortgage-debt purchases begun in September. Policy makers didn’t set a limit on the program’s size or duration and said the purchases will continue “if the outlook for the labor market does not improve substantially.”
The central bank bought $2.3 trillion of Treasury and mortgage-related debt from 2008 to 2011 in two rounds of purchases, known as quantitative easing, or QE.
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