The Treasury 10-year note yield declined, holding below 2 percent for the first time in seven days after European Central Bank President Mario Draghi signaled policy makers are concerned a strengthening euro will hurt efforts to end the region’s recession, sustaining the refuge appeal of U.S. debt.
U.S. debt fluctuated after reports showed claims for U.S. unemployment insurance payments dropped last week and the productivity of U.S. workers fell more than projected in the fourth quarter. The Federal Reserve bought $1.5 billion of Treasuries maturing from February 2036 through November 2042 as part of its program to boost economic growth.
“Some of the problems that drove up Treasury bids in the past, like Europe, have resurfaced,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “While there are encouraging signs of life with the economy, there’s also this recognition that there’s still some threats out there.”
The benchmark 10-year yield traded at 1.96 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note due November 2022 gained 1/32, or 31 cents per $1,000 face value, to 97 1/32.
Europe’s shared currency has gained 7.2 percent during the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Treasury market volatility, as measured by Bank of America Merrill Lynch’s MOVE index, was 62.8 yesterday, above the 59.7 average since Sept. 13, the day the Fed announced its plan to buy $40 billion per month of mortgage-backed securities.
“We’re in this continuing range, given the economic and political uncertainty,” said Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York. “We have the economic expansion that’s been muted. There’s a wall of investor interest at 2 percent or slightly above.”
Treasuries traded through ICAP Plc, the largest inter-dealer broker, totaled $325.2 billion yesterday. Trading volume has averaged $298.6 billion this year, compared with $231.7 billion through this time last year, or $237.7 billion for all of 2012.
Applications for jobless benefits dropped 5,000 to 366,000 in the week ended Feb. 2, Labor Department figures showed today. Economists forecast 360,000 claims, according to the median of 53 estimates in a Bloomberg survey.
U.S. payrolls increased by 157,000 in January, following a revised 196,000 gain the previous month, the Labor Department said Feb 1. Economists had forecast a gain of 165,000 jobs. The unemployment rate climbed to 7.9 percent.
Treasuries handed investors a 0.9 percent loss this year through yesterday, according to Bank of America Merrill Lynch indexes. They fell 1 percent in January, the steepest monthly loss since March, as money managers sought higher-yielding assets. German bunds fell 1.5 percent.
“You can make a case on either side of the market,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “The fundamental data points to the bearish case. The Fed is not backing away any time soon. That’s what keeps the market from going down.”
Ten-year U.S. rates will increase to 2.25 percent by year-end, according to a Bloomberg survey of financial companies. That means an investor who buys today would incur a loss of 0.5 percent, data compiled by Bloomberg show.
The Fed’s favored bond-market gauge of inflation expectations, the five-year, five-year forward break-even rate, which shows how much traders anticipate consumer prices will rise during a period of five years starting in 2017, fell to 2.91 percent on Feb. 4 from a 19-month high of 2.93 percent on Jan. 31.
The 100-day moving average of the price for the 10-year Treasury futures contract crossed above the 50-day moving average, a development that may indicate continued appreciation for the security according to technical analysis, Thomas di Galoma, a managing director at Navigate Advisors, a brokerage for institutional investors in Stamford, Connecticut, wrote in a note to clients.