Treasuries gained as European Central Bank President Mario Draghi said economic risks remain after policy makers in the region cut interest rates to a record low, underscoring the refuge appeal of U.S. government debt.
Longer-maturity securities led the gains as the ECB joined the People’s Bank of China and the Bank of England in increasing stimulus during a 45-minute span to bolster a faltering world economy. A report tomorrow is forecast to show the U.S. added fewer than 100,000 jobs for a third month.
“The central-bank actions were certainly reason enough” for Treasuries to gain, said James Collins, an interest-rate strategist in the futures group in Chicago at Citigroup Inc.’s Global Markets unit, one of 21 primary dealers that trade with the Fed. “We continue to get economic news that’s a little bit underwhelming.”
The 10-year yield fell three basis points, or 0.03 percentage point, to 1.60 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The record low of 1.44 percent was set June 1.
Thirty-year bond yields declined two basis points to 2.72 percent. Trading of Treasuries resumed today after being shut worldwide yesterday for the U.S. July 4 holiday.
The Federal Reserve purchased $4.714 billion of U.S. government securities as part of its effort to reduce long-term interest rates.
The Treasury said that it will sell $66 billion of longer-term debt next week, including $32 billion of three-year notes on July 10, $21 billion of 10-year securities July 11 and $13 billion of 30-year bonds July 12.
“There’s still a great deal of pessimism about the strength of any recovery,” said Aaron Kohli, an interest-rate strategist in New York at BNP Paribas SA, a primary dealer. “People still believe the malaise in the global economy is much greater than most policy makers realize.”
Applications for jobless benefits decreased by 14,000 in the week ended June 30 to 374,000, the fewest since mid May, Labor Department figures showed today. Economists forecast 385,000 claims, according to the median estimate in a Bloomberg News survey.
The U.S. economy added 100,000 jobs in June, according to the median forecast of 84 economists in a Bloomberg News survey. The unemployment rate will remain at 8.2 percent, the median projection in a separate survey of 80 economists shows.
A private payrolls report showed companies added more workers than forecast in June. U.S. businesses added 176,000 positions last month, up from a revised 136,000 in May, higher than initially estimated, according to figures from Roseland, New Jersey-based ADP Employer Services. The median forecast of economists surveyed by Bloomberg called for a 100,000 advance.
The Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, fell to 52.1 in June from the prior month’s 53.7, the Tempe, Arizona-based group said today. The median forecast of 70 economists surveyed by Bloomberg News projected 53. Readings above 50 signal expansion.
The ECB and China’s central bank cut their benchmark borrowing costs, while the BOE raised the size of its asset-purchase program. The central banks acted two weeks after the Fed expanded a program lengthening the maturity of bonds it holds and Chairman Ben S. Bernanke indicated more measures will be taken if needed.
“We’ve seen a bounce off comments from Draghi -- he’s reiterating what we all know, but he sounds quite bearish,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “It’s his comments saying the risks to the economic outlook are still on the downside. It’s nothing new, but it’s a reason for us to bounce.”
Treasuries yields are at levels making them near the most overpriced ever, according to a model created by Federal Reserve economists know as the term premium. The gauge was negative 0.91 today after falling to a record negative 0.94 on June 1. A negative reading indicates investors are willing to accept yields below what is considered fair value.
Treasury trading volume reported today by ICAP Plc, the largest inter-dealer broker of U.S. government debt, was $203.3 billion. Trading averaged $178.8 billion on July 2 and 3 before the July 4 holiday in the U.S., compared with a $246 billion average for the prior six months.
The gains in Treasuries are “a manifestation of the risk-off trade, but I wouldn’t read too much into it on a low-volume day,” said Jay Mueller, who manages about $3 billion of bonds at Wells Capital Management in Milwaukee.