Treasuries rose, pushing yields to the lowest level in more than a week, as investors bet jobs growth is slow enough to deter the Federal Reserve from accelerating cuts in its bond-purchase program.
U.S. debt extended a rally from April 4 when a report showed U.S. employers added 192,000 jobs last month, less than the 200,000 projected by a Bloomberg News survey of economists. The Fed is scheduled to release the minutes of its March 18-19 meeting on April 9, after using the session to make a third cut to the debt-purchase program designed to support the economy. The U.S. is scheduled to sell $64 billion of notes and bonds this week.
“We are still data dependent, and Friday’s data wasn’t anything to write home about,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “The market is respecting, rather than shunting off Friday’s data, which wasn’t enough to confirm the view that the winter weather effect is transitory.”
The benchmark 10-year yield fell two basis points, or 0.02 percentage point, to 2.70 percent at 5:06 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2.75 percent note maturing in February 2024 added 6/32, or $1.88 per $1,000 face amount, to 100 13/32. The yield reached the lowest level since March 28. It declined eight basis points on April 4, the most on a closing basis since March 13.
“The market was leaning a little bit toward a stronger report,” said Ray Remy, head of fixed income in New York at primary dealer Daiwa Capital Markets America Inc. “The market was caught offsides.”
The gap between five- and 30-year yields widened to 188 basis points, touching the most since March 21. It had narrowed to the least since 2009 last month after the Fed signaled that a strengthening economy may prompt policy makers to raise rates sooner than forecast next year.
Fed Chair Janet Yellen said last month the central bank may raise interest rates six months after ending its debt-purchase program. It has kept the target for overnight lending between banks in a range of zero to 0.25 percent since December 2008.
Traders’ wagers put the likelihood the Fed will start raising rates in June 2015 at 50 percent, based on futures trading on the CME Group Inc.’s exchange, compared with 54 percent on April 4.
Ten-year note yields will climb to 3.38 percent by year-end, according to a Bloomberg survey of economists and analysts with the most recent forecasts given the heaviest weightings.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, fell today to 2.13 percentage points, the lowest level sincee Feb. 7. The average since the start of 2004 is 2.21 percentage points.
Demand for inflation protection has declined since Fed Yellen said March 31 that slack in labor markets showed that the central bank’s accommodative policies will be needed for some time.
The Fed purchased $1.02 billion of Treasuries maturing between November 2039 and August 2043 today as part of its debt-buying program.
The U.S. is scheduled to sell $30 billion of three-year notes tomorrow, $21 billion in 10-year securities the next day and $13 billion of 30-year bonds on April 10.
Some foreign buyers “believe the economy is not in good shape and want to put money here into the bonds market,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “The market rallies into supply. People are using the auction as a liquidity event to get supply in one shot and they are not too price sensitive.”
America’s improving fiscal health is starting to be reflected in the market for Treasuries.
As the Fed scales back its unprecedented bond buying this year, the ability of the world’s largest debtor nation to attract investors underscores the strides the U.S. has made to strengthen its creditworthiness after the worst financial crisis since the Great Depression.
Investors submitted bids for $1.73 trillion of government notes and bonds at auctions held in the first quarter, or 3.07 times the $564 billion that was sold, according to data compiled by Bloomberg. The bid-to-cover ratio rebounded from last year’s 2.87, which was the lowest annual level in four years.