Treasuries Set for Weekly Loss as Meritz Sees Tightening

Treasuries headed for a weekly loss before jobs data Meritz Securities Co. said will lead the Federal Reserve to further cut its debt-purchase stimulus and usher in a “tightening season” of higher interest rates.

U.S. government securities due in more than a year dropped 0.9 percent in the month ended yesterday, the biggest decline among 26 debt indexes around the world compiled by Bloomberg and the European Federation of Financial Analysts Societies. Yields on five-year notes climbed to the highest in seven months today, rising above Spain’s. Traders are betting the Fed will raise its benchmark interest rate in August 2015, futures contracts indicate.

“The U.S. economy looks good,” said Park Sungjin, the head of asset management in Seoul at Meritz Securities Co. “Yields will rise slowly.” Park, who manages $7 billion, said he is avoiding Treasuries.

Benchmark 10-year yields were little changed at 2.80 percent as of 7:02 a.m. New York time, according to Bloomberg Bond Trader prices. The yield has risen eight basis points in the week. The price of the 2.75 percent security due in February 2024 was 99 19/32.

While the yield has risen from 1.76 percent a year ago, it is less than the 3.46 percent average of the past decade.

Unemployment Rate

The economy added 200,000 jobs in March, versus 175,000 in February, according to the median estimate of analysts in a Bloomberg News survey before the Labor Department report. The unemployment rate fell to 6.6 percent from 6.7 percent, matching the lowest level since 2008, a separate survey shows.

Yields on five-year notes touched 1.80 percent today, the highest level since Sept. 6. Spain’s fell to 1.76 percent.

“People have started pricing in rate hikes in 2015 and five-year notes have been bearing the brunt of the downtrade,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “If the payrolls data is stronger, the five-year note will probably lead the way down.”

Five-year notes yielded 183 basis points, or 1.83 percentage points, less that 30-year bonds, narrowing from 223 basis points at the end of last year.

The Bloomberg U.S. Treasury Bond Index (BUSY) has fallen 0.3 percent this week.

Volatility in U.S. government securities as measured by the Bank of America Merrill Lynch MOVE Index rose to 66.28 on April 2, the most since Feb. 6, before falling to 65.2 yesterday. That compares with an average of 72.14 over the past 12 months.

Treasury Auctions

The U.S. announced yesterday 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.

“People are getting more of a rosy picture on the U.S. economy as the weather has improved and we’ve seen an increase in rates over the past few sessions,” said Collins at Bank of Montreal. “Ultimately people are looking for the positive data.”

Fed Bank of Dallas President Richard Fisher said the central bank will end its bond purchases in October if it continues to taper buying at the current pace, in comments today in Hong Kong. In three meetings since December the FOMC has reduced monthly bond purchases in $10 billion increments to $55 billion. Fisher votes on monetary policy this year.

Treasuries don’t seem to lack demand, Fisher said. Treasury holdings in China won’t guide what the Fed does, he said. China is America’s largest foreign creditor.

The central bank’s next policy session is scheduled for April 29-30 in Washington. Minutes from the last meeting are scheduled for release next week.

Fed Chair Janet 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.

Policy makers have kept their benchmark, the target for overnight lending between banks, in a range of zero to 0.25 percent since 2008.

The implied yield on 30-day federal fund futures contracts expiring in August 2015 was 0.54 percent, indicating investors expect the target to be higher by then.

To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Mark McCord, Paul Dobson

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