Treasuries Fall as U.S. Adds More Jobs Than Forecast in November

Treasuries fell for the first time in four days after a report showed U.S. payrolls expanded more than forecast last month, easing concern the economy is faltering as lawmakers fail to agree on a plan to avoid the fiscal cliff.

Yields on benchmark 10-year notes rose from a more than two-week low after Labor Department figures showed the U.S. added 146,000 jobs in November and the unemployment rate fell to 7.7 percent. Even with the increase in employment, the Federal Reserve is forecast to provide more monetary stimulus when policy makers meet next week.

“The data is not gangbusters, but the gains are decent,” said David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “There’s a slight increased risk that they don’t do as much as the market was pricing in. There’s no renewed sense of urgency. We can back up a bit.”

Ten-year note yields rose four basis points, or 0.04 percentage point, to 1.62 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The price of the 1.625 percent notes maturing in November 2022 fell 10/32, or $3.13 per $1,000 face value, to 100. The yield rose one basis point on the week.

The yield traded within a range of 9.3 basis points this week, the narrowest amount since the five days ended July 20. The yield, which dropped to a record low of 1.38 percent July 25, touched 1.56 percent on Dec. 6.

Futures Bets

Hedge-fund managers and other large speculators increased their net-long position in 10-year note futures in the week ending Dec. 4, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 202,691 contracts on the Chicago Board of Trade, compared with 187,654 in the previous week. Net-long positions rose by 15,037 contracts, or 8 percent, from a week earlier, the Washington-based commission said in its Commitments of Traders report.

Today’s employment report, released just over a month after Hurricane Sandy devastated the East Coast, was forecast to show the U.S. added 85,000 jobs, according to 91 economists in a Bloomberg News Survey. The jobless rate had stayed above 8 percent since February 2009 until it broke the trend in September.

“The two headline numbers, the unemployment rate and the amount of jobs that were created, point to a gradual healing of labor markets,” Mohamed El-Erian, chief executive officer at Newport Beach, California-based Pacific Investment Management Co., the world’s biggest manager of bond funds, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “But if you look at the details, long-term unemployment, youth unemployment, participation rate, they tell you we are not at critical masses yet.”

Quantitative Easing

The payrolls data also follow a month after Barack Obama won his second term as president. The Fed is trying to sustain growth with Obama and Republican leaders in Congress unable to agree on a plan to avert $600 billion in spending cuts and tax increases for 2013 that will start to take effect in January. The Congressional Budget Office has warned that if lawmakers don’t avoid the so-called fiscal cliff, the economy might slip into recession.

“The most likely outcome is some mini-bargain that will be a first step,” El Erian said. “There’s a lot of posturing.”

Fed policy makers said on Sept. 13 they will buy bonds until the job market improves “substantially.” A “number” of officials said at their policy meeting in October that additional monthly purchases of bonds may be warranted, according to the minutes of the Federal Open Market Committee. The Fed’s program of swapping short- for long-term debt that’s become known as Operation Twist expires this month.

Smaller Swings

The yield difference between 10-year notes and similar-maturity Treasury Inflation Protected Securities, which represents traders’ outlook for the rate of inflation over the life of the securities, touched 2.5 percentage points today, the widest since Nov. 7. The average over the past decade is 2.18 percentage points.

Volatility in Treasuries dropped this week to the least in five years. Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, touched 51 basis points on Dec. 3, the lowest level of price swings since April 1988. It hit a 2012 high of 95.4 basis points on June 15. Volatility climbed to 264.6 basis points in October 2008 as the financial crisis intensified.

The U.S. will sell $66 billion in Treasuries next week, including $32 billion in three-year debt, $21 billion in 10-year notes and $13 billion in 30-year bonds.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE