Treasuries gained, pushing 10-year note yields to almost a seven-week low, after a report by ADP Research Institute showed companies in the U.S. hired fewer workers than forecast in September, boosting demand for refuge.
The benchmark yields slid the most in two weeks as the jobs report added to bets the Federal Reserve won’t soon slow its bond purchases. Treasuries rose earlier as the partial shutdown of the U.S. government entered a second day amid speculation it will merge into the debate over raising the federal debt ceiling. Treasury Secretary Jacob J. Lew said the U.S. has begun using the last measures available to avoid breaching the limit.
“The weak jobs data confirmed what we’ve heard from the Fed: that the economy isn’t strong enough for them to pull back yet,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The Treasury market is also getting a safe-haven bid from Lew’s letter last night, which focused the market’s attention on the debt-ceiling crisis.”
Ten-year yields decreased three basis points, or 0.03 percentage point, to 2.62 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The price of the 2.5 percent debt due in August 2023 rose 9/32, or $2.81 per $1,000 face amount, to 98 31/32. The yields dropped as much as six basis points, the biggest intraday decline since Sept. 18, to 2.5901 percent. They sank on Sept. 30 to 2.5882 percent, the least since Aug. 12.
Trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, fell for a second day, declining 1.4 percent to $322 billion. The average daily volume this year was $316 billion.
Price swings as measured by the Merrill Lynch Option Volatility Estimate Index dropped for the first time in six days, declining 6 percent to 82.15. The 2013 average is 72.1.
Rates on Treasury bills that mature Oct. 24 decreased to 0.065 percent, from 0.075 percent yesterday and negative 0.01 on Sept. 27. Two years ago, one-month bills climbed to a 29-month high of 0.18 percent as the Aug. 2, 2011, deadline set by Treasury to avoid a default approached.
Three-month bill rates fell to 0.0051 percent, from 0.0152 percent yesterday. They reached negative 0.0101 percent Sept. 27, the lowest this year. The 2013 average is 0.048 percent.
Bonds fell yesterday on speculation the government shutdown might end soon enough for lawmakers to work on extending the federal debt limit.
“The sentiment that this would only last a couple of days is dwindling,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based institutional-investors brokerage. “I don’t think people are optimistic about a deal getting done in the next day or two.”
Lew, in a letter yesterday to House Speaker John Boehner, repeated that the debt measures will be exhausted no later than Oct. 17 and urged Congress to extend the nation’s borrowing authority immediately.
Treasuries remained higher as President Barack Obama summoned the top four leaders of Congress to the White House for the first high-level talks on reopening the government. Jay Carney, White House press secretary, said the Oval Office meeting wouldn’t be a negotiation. Boehner, Senate Majority Leader Harry Reid, Senate Minority Leader Mitch McConnell and House Minority Leader Nancy Pelosi were invited. Lew and Vice President Joe Biden will also attend.
Treasuries extended gains after Roseland, New Jersey-based ADP Research reported companies in the U.S. boosted payrolls by 166,000 in September. The median forecast of 40 economists surveyed by Bloomberg called for an advance of 180,000.
“The weak job number shows we have an economy that is growing, but not enough to generate a response from the Fed,” said Carl Lantz, head of interest-rate strategy in New York at Credit Suisse Group AG, one of 21 primary dealers that trade with the Fed. “The potential for a lack of high-quality government data that may occur if we don’t get Friday’s job data makes it even more difficult for the Fed to change gears.”
The Labor Department won’t issue its monthly nonfarm employment data if the government is closed Oct. 4, the scheduled release date, an Obama administration official said this week. The report is forecast to show U.S. payrolls grew by 180,000 workers last month, the most since April, according to economists in a Bloomberg survey.
Data on U.S. jobless-benefit claims for the week ended Sept. 28 will be released as scheduled tomorrow, a Labor Department spokesman said yesterday in an e-mail.
Treasuries lost 2.5 percent this year through yesterday, according to the Bloomberg U.S. Treasury Bond Index, reflecting speculation the Fed was planning to reduce its $85 billion in monthly bond purchases under the quantitative-easing stimulus strategy as the economy improved. The Bloomberg Global Developed Sovereign Bond Index has lost 3.2 percent in 2013.
Policy makers said Sept. 18 they want more evidence of an economic recovery before tapering the purchases.
Pacific Investment Management Co.’s Bill Gross said investors should focus on buying debt that will benefit from the market’s mispricing of when the Fed will eventually increase interest rates.
“If you want to trust one thing and one thing only, trust that once QE is gone and the policy rate becomes the focus, that fed funds will then stay lower than expected for a long, long time,” Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website today. “Right now the market, and the Fed forecasts, expect fed funds to be 1 percent higher by late 2015 and 1 percent higher still by December 2016. Bet against that.”
Fed policy makers have held the key rate target at zero to 0.25 percent since 2008 and have vowed to keep it there until the economy and employment show sustained signs of recovery.