Treasuries Head for Biggest Weekly Gain in 2012

Treasuries headed for their steepest weekly gain in 2012 before reports that economists said will show hiring in the U.S. picked up from the slowest pace in six months while manufacturing growth waned.

U.S. yields slid to record lows yesterday as Europe’s fiscal crisis and signs of ebbing in the pace of economic expansion drove demand for the relative safety of American government debt. Ten-year rates approached those in Japan, which are the lowest among the world’s 10 biggest debt markets. The difference between the two narrowed to 73 basis points yesterday, the least since 1990.

“For the past few months we have been accumulating,” said Akira Takei, head of the international fixed-income department in Tokyo at Mizuho Asset Management Co., which oversees about $41.9 billion and is part of Japan’s second-biggest publicly traded bank. “We are celebrating. My hunch is that the final destination for U.S. Treasury yields will be to converge with Japanese yields within a year or two.”

Benchmark U.S. 10-year yields were little changed at 1.57 percent as of 12:23 p.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.75 percent security due in May 2022 was 101 21/32.

The record low yield set yesterday was 1.53 percent. The rate has declined 17 basis points this week, the most since the period ended Dec. 16.

The 14-day relative-strength index for 10-year Treasury yields fell to 26. A reading less than 30 suggests to some traders that rates have declined too quickly and are set to change direction.

Japan’s 10-year rate slid one basis point, or 0.01 percentage point, to 0.82 percent. It has fallen for five straight days.

Jobs Report

U.S. payrolls probably climbed by 150,000 in May, following a 115,000 increase in April, according to the median forecast of economists surveyed by Bloomberg News. The unemployment rate held at a three-year low of 8.1 percent, a separate set of projections showed.

The Institute for Supply Management Inc.’s factory index declined to 53.8 last month from 54.8 in April, according to another Bloomberg survey.

The U.S. “is perceived as a liquidity haven and a quality haven for the rest of the world,” said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., in an interview yesterday on Bloomberg Television’s “Street Smart” with Trish Regan. Investors view U.S. government securities as “mattress money that’s safe, as opposed to a risk.”

Long Bonds

Thirty-year bonds, among the securities most sensitive to inflation because of their long maturity, are outperforming the rest of the market.

The extra yield investors demand to buy the long bonds instead of 10-year notes narrowed to 1.05 percentage points yesterday, the least in four months. The average over the past decade is 70 basis points.

Investors snapped up Treasuries last month on concern Greece’s efforts to battle a recession will lead it to abandon the euro. Ten-year yields climbed as high as 6.01 percent in Italy and 6.70 percent in Spain as investors questioned whether the countries will be able to pay their debts.

U.S. gross domestic product grew at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, Commerce Department figures showed yesterday.

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