Treasuries Halt Four-Day Gain Before GDP, Jobless Claims Data

Treasuries fell, halting a four-day gain, before U.S. data forecast to show applications for unemployment benefits declined, bolstering the case for the Federal Reserve to pare stimulus as early as next month.

The five-year yield rose from the lowest in more than a week before a $35 billion auction today. Government bonds in Australia and Japan advanced as tension over possible military action in Syria boosted demand for haven assets. The jobless claims data will shape expectations for U.S. payrolls data due Sept. 6, according to Australia & New Zealand Banking Group Ltd. (ANZ)

“It’s interesting today that U.S. 10-years have weakened given the geopolitical backdrop,” said Tony Morriss, the Sydney-based head of interest-rate research at ANZ Bank. “Focus is already shifting to the payrolls number, which we consider to be most important in shaping expectations not only of the taper in September, which almost looks to be a done deal, but on projecting when the Fed might have sufficient confidence in the recovery to eventually lift short-term interest rates.”

The U.S. 10-year yield rose one basis point, or 0.01 percentage point, to 2.72 percent at 11:33 a.m. in Tokyo, after dropping 19 basis points in the previous four sessions, according to Bloomberg Bond Trader prices. The 2.5 percent benchmark note due in August 2023 fell 3/32, or 94 cents per $1,000 face value, to 98 3/32.

Bond Auctions

The U.S. government is scheduled to sell $35 billion of five-year securities today and $29 billion of seven-year bonds tomorrow after $34 billion of two-year notes were sold at a lower-than-forecast yield yesterday.

The two-year notes drew a yield of 0.386 percent, compared with a forecast of 0.390 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio rose to 3.21, the most since April.

The yield on the current two-year note was little changed at 0.39 percent. The five-year yield rose 2 basis points to 1.54 percent after touching 1.51 percent yesterday, the lowest in more than a week.

Investors bid for 2.46 times the amount of five-year notes on offer last month versus 2.45 at the June auction.

Revised figures from the Commerce Department tomorrow may show U.S. gross domestic product grew at a 2.2 percent annualized rate in the second quarter, compared with an initial estimate of 1.7 percent, according to the median projection of economists surveyed by Bloomberg.

Analysts in a separate poll expect a Labor Department report will show tomorrow initial jobless claims fell 5,000 to 331,000 in the week ended Aug. 24 from the previous period. Data due Sept. 6 may show nonfarm payrolls rose by 170,000 this month, while unemployment rate held at 7.4 percent, according to median estimates of economists in Bloomberg surveys.

Fed Operation

The Fed will purchase as much as $3.5 billion of notes today, according to the New York Fed website. The central bank’s debate about when to taper $85 billion in monthly bond buying has roiled financial markets around the world and sparked a selloff in fixed-income assets.

The U.S. central bank will vote to scale back stimulus at its Sept. 17-18 meeting, according to 65 percent of economists surveyed this month by Bloomberg.

The Fed will probably reduce its purchases of Treasuries rather than mortgage bonds, Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., which oversees world’s biggest bond fund, said in a Bloomberg Television interview yesterday.

Treasuries have fallen 0.5 percent this month, according to the Bloomberg U.S. Treasury Bond Index. (BUSY) German bunds have dropped 0.9 percent in the same period, while Japanese government bonds have returned 0.4 percent.

Syria Tension

The MSCI Asia Pacific Index of shares fell 1.5 percent as the U.S., France and the U.K. stepped closer to a military strike against Syria. U.S. President Barack Obama is working with allies to reach agreement on limited action against the nation after concluding the regime used chemical weapons against civilians.

Japan’s 10-year yield slid 1 1/2 basis points to 0.725 percent, after touching 0.72 percent, the lowest since Aug. 21. Australia’s 10-year yield dropped four basis points to 3.89 percent.

“Any data has basically been trumped by the rising tensions in Syria and bonds have rallied,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “That’s how it should play out today as well in the Treasury market and for global bond markets.”

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.