Investors optimistic enough to predict that the Federal Reserve won’t buy more debt to support the economy decreased this month amid slower job growth, according to a Citigroup Inc. survey.
Almost 45 percent of respondents said they didn’t expect the Fed to carry out more quantitative easing, known as QE3, according to the April survey by the bank’s Citigroup Global Markets unit. That was down from about 60 percent of respondents who expected no QE3 in a March survey. The recent results were published yesterday in a research note.
The central bank has purchased $2.3 trillion of bonds in two rounds quantitative easing since 2008. The Fed’s replacement of $400 billion in shorter maturities with longer-term debt under what is known as Operation Twist will end in June.
“The data has been a bit softer, especially the recent payrolls number,” said Neela Gollapudi, a New York-based strategist at Citigroup, in a telephone interview today. “The strength of conviction that there was going to be no more QE at all would be less now than when it was in March, when everything seemed to be going very well.”
U.S. nonfarm payrolls rose by 120,000 last month, the smallest gain in five months, the Labor Department reported April 6. Jobless claims unexpectedly climbed in the week ended April 7 to 380,000, the most since January, the Labor Department reported yesterday.
Fed Rate Outlook
The majority of respondents in the Citigroup survey expect the Fed will first lift its target rate for overnight loans between banks during the first half of 2014. The Fed has kept its benchmark rate in a range of zero to 0.25 percent since December 2008.
Fed Vice Chairman Janet Yellen and New York Fed President William C. Dudley endorsed this week the central bank’s view that borrowing costs are likely to stay low through at least late 2014.
The average forecast yield on 10-year U.S. Treasury notes in three months was 2.23 percent, according to the Citigroup survey. Yields on the benchmark Treasuries fell seven basis points, or 0.07 percentage point, to 1.98 percent today, according to Bloomberg Bond Trader Prices.
In the bank’s March survey, investors projected a 2.40 percent yield in three months. The yield reached that level on March 20, which is the highest since October.
“Given the outsized move higher in rates during the early part of March, it’s not surprising that the survey taken right after that sounded more bearish on the Treasury market than it does now given that yields have come back down,” Gollapudi said in the interview.
Citigroup doesn’t disclose the number of respondents. The survey was distributed to respondents on April 9 and closed yesterday.