Treasuries fell, pushing 10-year note yields to an 11-month high, after U.S. employers added more jobs than forecast and the unemployment rate fell, indicating the Federal Reserve’s stimulus efforts are paying off.
Yields on 10-year notes had the biggest weekly increase in almost a year as gauges of company hiring and U.S. services industries rose more than forecast. The jobless rate unexpectedly dropped to 7.7 percent last month, a four-year low. Fed Chairman Ben S. Bernanke reiterated last week the central bank will keep buying bonds until there’s “substantial improvement” in the labor market.
“I don’t know if we’re getting the bang for the buck in terms of economic improvement, but clearly we’ve seen an improvement,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “There’s nothing we’ve seen this week that makes me think the Fed will pull its foot off the pedal yet.”
Ten-year note yields climbed five basis points, or 0.05 percentage point, to 2.04 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. They touched 2.08 percent, the highest since April 5, 2012. Today was the fifth straight day they increased, the longest stretch since August. The price of the 2 percent security due in February 2023 decreased 13/32, or $4.06 per $1,000 face amount, to 99 20/32.
The benchmark yields advanced 20 basis points this week, the most since the five days ended March 16, 2012. The gap between yields on two- and 10-year notes reached 1.82 percentage points, the most since April 6, 2012.
Thirty-year bond yields rose four basis points to 3.24 percent and touched 3.28 percent, the highest since April 2012.
Hedge-fund managers and other large speculators decreased their net-long position in 10-year note futures in the week ending March 5, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 76,818 contracts on the Chicago Board of Trade. Net-long positions fell by 39,090 contracts, the most since Dec. 21, from a week earlier, the Washington-based commission said in its Commitments of Traders report.
Treasury yields trimmed increases after reaching their highs of the day.
The rise in yields “has presented a decent buying opportunity,” said Michael Pond, head of global inflation- linked research at Barclays Plc, one of 21 primary dealers that trade with the Fed. “There are signs of improvement for sure, but we think consumer spending will weigh on the economy and that the back-up in rates is a bit overdone for now.”
Employment rose by 236,000 jobs last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed today in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. Economists had forecast the unemployment rate would hold steady at 7.9 percent.
“The bond market has been stubbornly below 2 percent,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. “With this number, people will question the validity of being in the ultra-safe trade.”
The U.S. central bank has been acquiring $85 billion of bonds each month under the quantitative-easing stimulus strategy since the start of the year, $45 billion in Treasuries and $40 billion of mortgage debt. The effort is designed to try to hold down borrowing costs and encourage economic growth.
“The Fed may start to come out of the equation as the big buyer,” said Michael Franzese, senior vice president of fixed- income trading at ED&F Man Capital Markets in New York. “The $85 billion may not last until January 2014.”
The central bank has also kept its benchmark interest-rate target for overnight lending between banks in a range of zero to 0.25 percent since 2008 to support the economy.
Policy makers reiterated after their January meeting the rate will stay low as long as unemployment is above 6.5 percent and inflation is projected at no more than 2.5 percent.
Bernanke, in congressional testimony last week, defended the Fed’s bond buying, saying the benefits of reducing borrowing costs and fueling growth outweigh any potential drawbacks.
The economy added an average of 178,000 people a month to nonfarm payrolls in 2011 and 2012, Labor Department data show. The jobless rate had stayed above 8 percent since February 2009 until it broke the trend in September.
Bill Gross, manager of the world’s biggest bond fund, said today’s employment data won’t prompt the Fed to alter its stimulus measures.
Bernanke, Fed Vice Chairman Janet Yellen and New York Fed Bank President William Dudley “have made it obvious that even if unemployment gets to 6.5 percent, they are going to look around,” Pacific Investment Management Co. founder Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “They are going to look at the participation rate, they are going to look at the work rate, they are going to look at productivity.”
The participation rate, which shows the share of working- age people in the labor force, fell to 63.5 percent last month, matching the lowest since September 1981, from 63.6 percent.
U.S. government securities fell this week and stocks rose, with the Dow Jones Industrial Average (INDU) reaching a record, as the Institute for Supply Management said U.S. services industries unexpectedly expanded to a reading of 56 in February, the highest in a year.
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