Treasuries rose, pushing 10-year yields down from almost the highest levels since January, amid speculation that a report tomorrow forecast to show faster U.S. employment growth drove the market down too much.
Benchmark 10-year notes gained for the first time in three days as reports showed the nation’s trade deficit unexpectedly widened in February and initial claims for unemployment insurance rose more than estimated last week. U.S. debt fell yesterday as forecasters predict the jobs report may help convince the Federal Reserve to increase interest rates next year.
“The market priced in a somewhat too strong report before it happened, and we’ve run a little too far,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “Today’s data has come in generally on the softer side, which is giving some investors pause.”
The U.S. 10-year yield fell one basis point, or 0.01 percentage point, to 2.80 percent at 5:02 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.75 percent note due February 2024 rose 2/32, or 63 cents per $1,000 face amount, to 99 18/32. The yield reached 2.82 percent on March 7, the highest since Jan. 23.
Benchmark U.S. yields were almost the highest relative to their German counterparts in almost eight years as the European Central Bank kept policy accommodative while the Fed slows stimulus.
The extra yield on the securities compared with similar-maturity bunds reached 1.19 percentage points, the most since May 2006. German 10-year debt yields were little changed at 1.60 percent.
The yield on U.S. 10-year debt is higher than 14 countries in the developed world, just above the U.K. and less than Norway, according to Bloomberg data.
Pacific Investment Management Co.’s Bill Gross recommended staying in bonds maturing in five years and less even after comments last month from Fed Chair Janet Yellen sent shorter-maturity yields surging.
“The 1–5 year portion of the curve, beaten up recently due to Fed ‘blue dot’ forecasts and Yellen’s ‘six months after’ comments, should hold current levels if inflation stays low,” Gross wrote in his monthly investment commentary on Newport Beach, California-based Pimco’s website. “But 5–30 year maturities are at risk.”
Traders brought forward bets on when the Fed will raise borrowing costs after Yellen signaled last month the central bank may end the bond-purchase program it uses to support the economy in the second half of 2014. The Fed may increase rates six months after that, she said.
Volatility in U.S. debt measured by the Bank of America Merrill Lynch MOVE Index rose to 66.28 yesterday, the highest level since Feb. 6.
The U.S. announced it will auction $30 billion of three-year notes on April 8, $21 billion in 10-year debt the next day and $13 billion of 30-year bonds on April 10.
The ECB held interest rates unchanged even after inflation in the euro area weakened to the slowest pace in more than four years. The 24-member Governing Council left the main refinancing rate at a record low of 0.25 percent after policy makers met in Frankfurt today. This decision was forecast by 54 of 57 economists in a Bloomberg News survey, with three expecting a cut. The deposit rate was left unchanged at zero and the marginal lending rate at 0.75 percent.
U.S. jobless claims increased 16,000 in the period ended March 29 to a five-week high of 326,000, the Labor Department reported today in Washington. A revised 310,000 applications were filed in the previous week, the fewest since Sept. 7. The median forecast of 52 economists surveyed by Bloomberg called for 319,000 claims.
The U.S. trade deficit unexpectedly widened in February, indicating the gross domestic product may have grown slower than forecast.
The “negative GDP implications for the first quarter” helped feed a “modest bid to the Treasury market,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
The trade gap widened to $42.3 billion, the biggest since September, from the prior month’s $39.3 billion, Commerce Department figures showed. The median forecast in a Bloomberg survey of 69 economists called for a reduction to $38.5 billion.
The U.S. economy added 200,000 jobs, versus 175,000 in February, a survey shows before the Labor Department releases the figures tomorrow. The unemployment rate fell to 6.6 percent from 6.7 percent, matching the lowest level since 2008, according to a separate survey.
“You should start to see some good growth in both the jobs numbers and the economic data,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. “That will play right into what the Fed is looking to do.”