Treasuries fell, boosting the 30-year bond yields by the most in seven months, after a report showed U.S. employers added more jobs in April than forecast, boosting the outlook for economic growth and trimming demand for refuge.
U.S. 10-year notes yields rose the most since January as the U.S. employment rate unexpectedly fell to 7.5 percent, a four-year low. Yields on benchmark notes had reached to the lowest levels this year this week as the Federal Reserve said it may increase or reduce the size its purchases of government and mortgage debt as conditions warrant under its quantitative-easing stimulus strategy.
“It’s not too strong a number for the Fed to pull back on stimulus, but it’s not so weak that we need to run to safety,” said Matthew Duch, a fund manager at Calvert Investments Inc. in Bethesda, Maryland, which oversees more than $12 billion in assets. After today, “I don’t think you can expect a large move up in yields. The Fed’s not pulling back and the economic numbers continue to grind along.”
The benchmark 10-year note yield rose 11 basis points, or 0.11 percentage point, to 1.74 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 2 percent note due in February 2023 fell 1 1/32, or $10.31 per $1,000 face amount, to 102 11/32.
The 30-year bond added 13 basis points, the most since Sept. 14, to 2.95 percent.
It yield reached 1.61 percent on May 1, the lowest level since Dec. 11. The gap between Treasuries maturing in two- and 10-years widened to 1.52 percentage points, the most since April 11, reflecting market sentiment for faster economic growth.
Payrolls expanded by 165,000 workers last month following a revised 138,000 increase in March that was larger than first estimated, Labor Department figures showed today in Washington. The median forecast of 90 economists surveyed by Bloomberg projected a 140,000 gain. Revisions to the prior two months’ reports added a total of 114,000 jobs to the employment count in February and March.
The jobless rate dropped to the lowest level since December 2008 from 7.6 percent in March.
“This was a solid report across the board,” said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York, one of the 21 primary dealers that trade with the Fed. “Some of the talk of more QE is probably fading.”
The 10-year Treasury yield will end the year at 2.22 percent, according to the median forecast of 66 economists in a Bloomberg News survey. That would be the highest year-end yield since 2010 at 3.29 percent. The yield was 1.76 percent at the end of last year and 1.88 percent at the close of 2011.
The Treasury will sell $32 billion of three-year notes on May 7, $24 billion of 10-year securities on May 8 and $16 billion of 30-year bonds on May 9.
“The guys that want to buy may just defer until next week,” said Guy Haselmann, an interest-rate strategist at Bank of Nova Scotia in New York, a primary dealer.
Policy makers at the central bank said May 1 that “fiscal policy is restraining economic growth.” The statement, by highlighting the option to boost purchases in response to data showing economic growth is slowing, struck a contrast with discussion of the timing of a reduction in the pace of buying at the Fed’s March meeting.
Employment in the public sector has declined by 423,000 positions since the start of 2011 compared with gains of 5.5 million among private employers, Labor Department data show.
Treasuries rallied in April as economic data from job growth to retail sales to inflation showed the pace of growth faltering, with U.S. government debt returning 1.1 percent, the best monthly performance since July 2011, according to Bank of America Merrill Lynch indexes.
The U.S. central bank has been buying $85 billion of bonds each month since the start of the year, $45 billion in Treasuries and $40 billion of mortgage debt, in an effort to hold down borrowing costs and encourage economic growth. It has kept its benchmark interest-rate target for overnight lending between banks in a range of zero to 0.25 percent since 2008 to support the economy.
Treasury 10-year yields dropped on May 1 to the lowest level this year after an industry report showed U.S. companies added fewer workers than economists forecast. Data on April 26 showed the economy grew at a 2.5 percent annualized rate in the first quarter, below the 3 percent median forecast in a Bloomberg survey.
“We don’t see higher real growth than 2 percent going forward,” said Bill Gross, manager of the world’s biggest bond fund, in a radio interview on “Bloomberg Surveillance” with Tom Keene. “We’ve seen basically 3.5 percent nominal GDP growth even in the midst of an accelerating housing sector.”
Gross boosted the proportion of U.S. government securities in the Total Return Fund to 33 percent in March from 28 percent in February, according to the latest available data on the Newport Beach, California-based company’s website. Gross has been advising investors to buy government debt, including inflation-linked securities and nominal Treasuries.
Central banks around the world are trying to reduce borrowing costs to support their economies.
The European Central Bank cut its benchmark interest rate by a quarter percentage point to a record low of 0.5 percent yesterday. The Bank of Japan is purchasing more than 7 trillion yen ($71.3 billion) of securities each month to spur growth.
The gap between 10-year yields in the U.S. and Germany widened to 0.50 percentage point from 0.46 percent point yesterday. The difference had been as wide as 0.59 percentage point on March 25.
Fed purchases have helped reduce volatility in the Treasury market. Bank of America Merrill Lynch’s MOVE Index measuring price swings declined to a record 49.04 basis points on May 1. The average for the past decade is 96.6 basis points.