Treasuries (BUSY) rose for a second week as U.S. job growth below forecast for a third month added to speculation the economic recovery is too slow for the Federal Reserve to begin reducing asset purchases this year.
Treasury 10-year yields touched the lowest level since July as additional reports showed consumer confidence fell for a third month and durable-goods orders excluding transportation unexpectedly declined, suggesting the economy took a step back amid the fiscal gridlock that partially shut down the federal government. The U.S. will sell $96 billion of notes next week and Fed policy makers meet Oct. 29-30.
“As a result of both the government shutdown and the debt ceiling, and the impact of those things on confidence, the assumption will be to expect weaker numbers unless proven otherwise,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “The Fed will delay its tapering.”
The benchmark 10-year note yield fell seven basis points, or 0.07 percentage point, to 2.51 percent this week, according to Bloomberg Bond Trader prices. The 2.5 percent debt due August 2023 rose 19/32, or $5.94 per $1,000 face amount, to 99 29/32.
Yields touched 2.47 percent on Oct. 23, the least since July 22. The 10-year note yield has fallen 50 basis points since reaching 3.01 percent on Sept. 6.
Treasuries returned 0.6 percent in October through Oct. 24, limiting their loss for 2013 to 1.85 percent, according to data compiled by Bloomberg. Securities in the Corporate Bond (BUSC) Index returned 1.4 percent this month, trimming losses to 1.06 percent for the year. The Bloomberg Global Developed Sovereign Bond Index (BGSV) gained 1.5 percent this month, reducing its 2013 decline to 1.9 percent.
Payrolls grew by 148,000 last month, versus the median forecast of a 180,000 advance by 93 economists in a Bloomberg News survey. The Oct. 22 Labor Department report, delayed by the 16-day shutdown that ended on Oct. 17, was originally slated for Oct. 4.
“Much of it has to do with expectations of the Fed withdrawing its influence in the markets,” said Christopher Sullivan, who oversees $2.2 billion as chief investment officer at United Nations Federal Credit Union in New York. That “contributed mightily to more investment” in Treasuries, Sullivan said.
The policy-setting Federal Open Market Committee refrained from reducing the pace of its monthly securities purchases on Sept. 18, with Fed Chairman Ben S. Bernanke saying the Fed must determine its policies based on “what’s needed for the economy,” even if it surprises markets.
The central bank will delay the first reduction in its bond purchases until March after the government shutdown slowed fourth-quarter growth, economists said. Policy makers will pare the monthly pace of asset buying to $70 billion from $85 billion at their March 18-19 meeting, according to the median of 40 responses in a Bloomberg survey of economists.
The shutdown that began Oct. 1 probably trimmed 0.25 percentage point from fourth-quarter economic growth and cost 120,000 jobs in October, President Barack Obama’s chief economic adviser said Oct. 22.
“I don’t see any real strength in the economy,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 21 primary dealers that trade with the Fed. “The earliest we’ll see tapering is in March. It wouldn’t surprise me if that’s pushed out further because the economy is going to go through a rough patch here.”
Traders are pricing in a 26.7 percent probability that the Fed will raise its benchmark overnight rate by its January 2015 meeting, down from 37.1 percent a month ago.
The Thomson Reuters/University of Michigan final index of consumer sentiment showed declined to 73.2 from 75.2 a month earlier. A Bloomberg survey projected a decline to 75 in yesterday’s report.
Bookings for non-military capital goods excluding aircraft, which reflect demand for productivity-enhancing equipment like machinery and electrical gear, decreased 1.1 percent last month, the second drop in three months, the Commerce Department reported yesterday.
The U.S. will sell $32 billion of two-year notes on Oct. 28, $35 billion of five-year securities on Oct. 29 and $29 billion of seven-year obligations the following day. It will be the third consecutive month that the U.S. has reduced the offering size of two-year debt.
The Treasury’s sale of $7 billion in inflation-indexed 30-year bonds on Oct. 24 attracted the most demand in a year as investors sought a hedge against the risk the Fed will succeed increasing inflation.
The sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.76, versus an average of 2.67 at the 10 previous auctions since 2010. The bonds were sold at a yield of 1.33 percent.
Consumer prices rose 1.2 percent in September compared with the 12-month-ago period, down from 1.5 percent in August, the Labor Department is forecast to announce Oct. 30, according to the median forecast of 42 economists in a Bloomberg News survey.
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