Treasuries rose, pushing 10-year yields to the lowest level in three months, as worse-than-forecast data on U.S. employment and the services industry spurred concern economic growth may be slowing.
U.S. government debt erased an earlier decline as companies added 158,000 workers last month, figures from the Roseland, New Jersey-based ADP Research Institute showed, below the median estimate of a 200,000 gain in a Bloomberg survey. A Labor Department report on April 5 is forecast to show the unemployment rate remained at a four-year low of 7.7 percent. An inflation-expectations gauge preferred by the Federal Reserve was below average.
“There were some shorts in the market, people expecting a higher number” from ADP, said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “People are nervous about Friday.” A short position is a bet an asset will decline in value.
The benchmark 10-year note yield fell five basis points, or 0.05 percentage point, to 1.81 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. It touched 1.79 percent, the lowest since Jan. 2. The 2 percent note due in February 2023 rose 14/32, or $4.38 per $1,000 face amount, to 101 22/32.
The 30-year bond yield fell five basis points to 3.05 percent as the price rose 31/32, or $9.69 per $1,000 face amount, to 101 15/32.
Treasuries extended gains today as the Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers almost 90 percent of the economy, fell to 54.4 in March from 56 in the prior month, the Tempe, Arizona-based group said today. The median forecast of 73 economists surveyed by Bloomberg was 55.5. Readings above 50 signal expansion.
“People are starting to worry about the traditional springtime swoon in the economy,” said Mitsubishi UFJ’s Roth.
Benchmark yields have fallen from their yearly highs in each of the prior three springs. Last year, yields reached 2.38 percent in March before dropping in April after a weaker-than-forecast jobs report.
In 2011, yields declined from a February high of 3.74 percent amid weakening economic data and then plunged below 2 percent following the Standard & Poor’s downgrade of the U.S. credit rating in August. In 2010, yields reached 3.99 percent in April before tumbling as the European sovereign-debt crisis spread.
The ADP employment increase, held back by limited hiring in construction, was the smallest since October and followed a revised 237,000 gain the prior month. Estimates in the Bloomberg survey ranged from gains of 170,000 to 240,000.
“The market is now fully focused on Friday to define direction,” said Tom Porcelli, chief U.S. economist at Royal Bank of Canada’s RBC Capital Markets LLC, one of 21 primary dealers that trade with the Fed. “The real question is, when do you start to gain momentum? No one can deny it’s moving along.”
Payrolls may have risen 205,000 in March, according to the median forecast in a Bloomberg survey, after a 236,000 gain the previous month that drove Treasury yields to an 11-month high on March 8 when the Labor Department released the report.
The Fed has said it would keep its key interest-rate target between zero to 0.25 percent as long as unemployment remains above 6.5 percent and the outlook for inflation is projected at no more than 2.5 percent.
Fed Bank of St. Louis President James Bullard said the central bank is in no hurry to reduce its record bond buying with inflation running below its 2 percent target.
“It is full steam ahead right now,” Bullard said today on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “That is exactly what the committee is doing.”
A voter on monetary policy this year, Bullard was one of the first Federal Open Market Committee officials to urge slowing the pace of bond purchases in 2013 if warranted by economic reports, a position taken by Chairman Ben S. Bernanke last month. In 2010, Bullard initiated calls for a second round of bond buying, which ran from November 2010 until June 2011.
The U.S. central bank purchased $3.728 billion of Treasuries maturing from February 2019 to March 2020 today as part of its program to buy $85 billion in government securities each month to boost the economy. Investors had offered to sell $13.957 billion of securities to the central bank.
Treasuries held on the Fed’s balance sheet totaled a record $1.79 trillion at the end of March, while its mortgage holdings have risen to $1.08 trillion, up 28 percent since policy makers announced in September 2012 that they would begin purchasing $40 billion a month of the securities.
The central bank’s asset purchases, which also include $45 billion a month in Treasuries, have led to “a bubble in the bond market,” said John Ryding, chief economist and co-founder of RDQ Economics, in an interview on Bloomberg Television’s “In the Loop.”
“There’s no reason fundamentally yields should be this low,” Ryding said. “The Fed’s repressing those yields and that will ultimately cause distortions in the capital markets and in the economy.”
Yields show inflation expectations have yet to rise. The Fed’s measure of traders’ forecasts for costs in the economy for the period from 2018 to 2023, known as the five-year five-year forward break-even rate, was 2.7 percent as of March 28, below the average for the past decade of 2.8 percent.
The yield on the 10-year note will end the year at 2.25 percent, according to the median estimate of economists in a Bloomberg News survey.