Treasuries rose for a second day on speculation lower-than-forecast job growth may prompt the Federal Reserve to be less aggressive when reducing monetary stimulus at this month’s policy meeting.
Benchmark 10-year yields fell after breaching 3 percent last week for the first time since 2011 amid speculation the Fed will announce plans to slow its bond-buying program. Yields slid after a report on Sept. 6 showed payrolls in the U.S. expanded less than projected in August. Six-month bills climbed after a sale of the securities drew the strongest demand since 1997.
“We’ve rallied a bit given the weak payrolls,” said Shyam Rajan, an interest-rate strategist at Bank of America Corp. in New York, one of the 21 primary dealers that trade with the Fed. “Market expectations for the size of the tapering have been pulled back a little.”
The Treasury 10-year note yield fell two basis points, or 0.02 percentage point, to 2.91 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. The yield dropped six basis points on Sept. 6, the most since Aug. 27 on a closing basis. The price of the 2.5 percent note due in August 2023 gained 6/32, or $1.88 per $1,000 face amount, to 96 15/32.
Two-year note yields declined one basis point to 0.44 percent after climbing on Sept. 6 to 0.53 percent, the highest since May 2011. They averaged 0.34 percent in August.
Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index fell for a second day, reaching 100.71, the least since Aug. 29. It climbed on Sept. 5 to 114.19, a two-month high.
Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, slid 45 percent to $245 billion, the lowest since Aug. 26. The figure is down from a 2013 high of $662 billion on May 22 and up from a low of $148 billion on Aug. 9. The 2013 average is $314 billion.
Treasuries have lost 4.1 percent in 2013, according to Bank of America Merrill Lynch indexes.
Bonds also rose today as President Barack Obama tried to persuade Congress and the American public to support air strikes against Syria for alleged chemical-weapons attacks. Obama plans to lay out his case for the action in a speech from the White House tomorrow, an administration official said.
Obama and congressional leaders intended to focus this month on a series of budget issues, including funding the U.S. government and increasing the federal debt limit, which the Treasury forecasts will be reached in mid-October.
Six-month bill rates dropped to as low as 0.0203 percent, matching the least since December 2011, after a $25 billion auction of the securities drew bids of $6.12 for every dollar sold. It was the highest demand level in more than 16 years.
“The bill auction was very strong amid the perfect storm of prospects for supply going down with the debt-ceiling debate coming, front-end yields being relatively low to the six-month bill and strong demand from people who missed out on last week’s aggressively bid auction,” said Thomas Simons, a government-debt economist in New York at the primary dealer Jefferies LLC. “We are entering a period that is a seasonally low supply period for the bill market.”
Fed Chairman Ben S. Bernanke and his colleagues will decide at their Sept. 17-18 meeting to reduce Treasury bond purchases to $35 billion from $45 billion while maintaining mortgage-bond buying at $40 billion, according to the median of 34 responses in a Bloomberg News survey of economists on Sept. 6.
The central bank bought $1.47 billion of Treasuries today maturing from February 2037 to February 2043 as part of the stimulus program.
“The jobs numbers on Friday were weaker than expected generally, and there is still concern about Syria in the market ahead of the Obama speech,” said Sean Murphy, a trader at the primary dealer Societe Generale SA in New York. “The taper is still coming, but it’s clear the economy is still not kicking on all cylinders.”
The addition of 169,000 workers in August, reported by the Labor Department on Sept. 6, trailed the 180,000 median forecast in a Bloomberg survey of 96 economists. The unemployment rate fell to 7.3 percent, the lowest since December 2008, as workers left the labor force. Revisions to prior reports subtracted a total of 74,000 jobs to payrolls in the previous two months.
Ten-year yields have surpassed the 2.79 percent weighted-average year-end prediction of analysts surveyed by Bloomberg.
The Treasury Department is scheduled to auction $65 billion in notes and bonds this week, including $21 billion in 10-year notes on Sept. 11. It will sell $31 billion in three-year debt tomorrow, down from $32 billion at the past 35 sales of the securities and the least since January 2009, and offer $13 billion in 30-year bonds on Sept. 12.
“We are near fair value given the news and probably will meander around these yield levels until we get policy clarity from the Fed,” said Russ Certo, a managing director at Brean Capital LLC in New York, referring to the jobs data. “The Fed will take great care to communicate and educate the market that tapering is just a first step and will stress that the program remains flexible, depending on what the economy needs.”