European, Japanese and emerging-markets debt also rallied a second day and stocks fell as borrowing costs for Chinese banks jumped. U.S. government debt climbed the most in a month yesterday after a report showed payrolls increased in September less than analysts projected. The data signal that the economy had little momentum leading up to the partial federal government shutdown that trimmed 0.25 percentage point from fourth-quarter economic growth and cost the U.S. 120,000 jobs in October, according to President Barack Obama’s chief economic adviser.
“Treasuries are getting steamy -- expensive,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “The Fed is still buying. Everyone is telling you the economy is slowing.”
The benchmark U.S. 10-year yield slipped one basis point, or 0.01 percentage point, to 2.5 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. It reached 2.47 percent, the lowest level since July 22. The 2.5 percent note due in August 2023 rose 3/32, or 94 cents per $1,000 face amount, to 99 31/32.
The yield fell nine basis points yesterday, the most since Sept. 18.
The new range on the 10-year yield is 2.42 percent to 2.58 percent, Franzese said.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index yesterday dropped to 63, the lowest level since May 21. The index, which reached a record low of 49 on May 9, climbed to 114 on Sept. 5, the highest level since July.
China’s benchmark money-market rate rose the most since July 29 as the central bank refrained from adding funds to markets and corporate tax payments drained cash. The seven-day repurchase rate, a gauge of funding availability in the system, surged 47 basis points to 4.05 percent, according to a weighted average compiled by the National Interbank Funding Center.
Germany’s 10-year bond yield dropped three basis points and touched 1.76 percent, the lowest since Sept. 30, after falling five basis points yesterday. Spain’s 10-year yield dipped seven basis points to 4.13 percent, the lowest since Oct. 2.
Japan’s benchmark 10-year debt yield dropped as low as 0.603 percent, the least since May 9.
Yields on Mexico’s shorter-term peso fixed-rate securities due in December 2014 touched 3.51 percent, the lowest on a closing basis since the debt began trading in January 2005, according to data compiled by Bloomberg.
The MSCI All-Country World Index lost as much as 0.8 percent, its biggest drop in two weeks. The Standard & Poor’s 500 Index (SPX) decreased 0.4 percent after rallying to a record yesterday for a fourth day.
The seven-day relative strength index for the Treasury 10-year note yield was at 25.8 today, dropping from 26.9 yesterday, according to Bloomberg data. A reading lower than 30 or above 70 suggests the security may be poised for a change in direction.
Treasuries are the most expensive in four months, based on the term premium, a model that includes expectations for interest rates, growth and inflation. The gauge was 0.14 percent, the lowest level since June 19. It has declined from this year’s high of 0.63 percent set on Sept. 5, signaling the cheapest levels of 2013. A positive reading indicates investors are getting yields that are above what is considered fair value.
Treasuries have returned 0.6 percent this month, according to the Bloomberg US Treasury Bond Index (BUSY), paring its loss this year to 1.84 percent. The gauge added 0.4 percent yesterday, the most since Sept. 18. The Bloomberg Global Developed Sovereign Bond Index (BGSV) gained 1.17 percent this month, limiting its 2013 decline to 2.19 percent.
“This market can continue to grind its way to lower yields,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Fed. Tapering won’t happen “at least till March. The economy is definitely not that strong. It doesn’t justify significantly higher yields.”
An analysis of daily and weekly economic data through Oct. 12 showed weakness in such areas as retail sales, economic confidence and mortgage applications, some of which was directly related to the shutdown, said Jason Furman, head of the Council of Economic Advisers.
U.S. payrolls grew by 148,000 in September, versus the median forecast of a 180,000 advance by 93 economists in a Bloomberg News survey. The gain followed a revised 193,000 rise in August that was bigger than initially estimated, Labor Department figures showed yesterday in Washington.
The jobs report, delayed by the 16-day shutdown that ended on Oct. 17, was originally slated for Oct. 4.
“If we continue to get poor numbers, 2.4 percent is the level on 10s everyone is thinking about,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “We’ve had quite a rally. The market is certainly positioned for that -- no tapering until March.”
Traders are pricing in a 26 percent probability that the Fed will raise its benchmark overnight rate by its January 2015 meeting, down from 43 percent a month ago.
Economists predict the Fed will maintain its $85 billion of monthly bond purchases until March, according to a Bloomberg survey conducted on Oct. 17-18. The Fed purchased $3.15 billion in Treasuries maturing between August 2021 and August 2023 today as part of its program to lower borrowing costs.
Before the shutdown, most policy makers said the central bank would probably reduce bond purchases this year. The Fed’s next two policy meetings are Oct. 29-30 and Dec. 17-18.
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