Treasury Yield Touches Two-Month Low as Traders Trim Fed Bets

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The Treasury 10-year yield touched the lowest level in two months as traders pushed back bets for when the Federal Reserve will raise interest rates amid signs the U.S. labor market is slowing.

U.S. government bonds gained 0.52 percent in the past two weeks, the best performing government debt after Australia, which returned 0.58 percent, according to data compiled by Bloomberg and the European Federation of Financial Analysts Societies. Australia’s debt has advanced amid speculation the Reserve Bank, which meets tomorrow, will cut interest rates, adding to easing from policy makers around the world.

“The jobs data confirmed sluggishness in the U.S. economy in the January-March period,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “If the weak employment trend continues, it could push back the timing of the Fed rate hike and boost the allure of Treasuries.”

The benchmark 10-year yield wqas little changed at 1.83 percent at 7:41 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent benchmark note due February 2025 was at 101 14/32. The yield reached 1.82 percent, the lowest level since Feb. 6.

The Treasury notes rallied on April 3 as traders pushed back bets for when the Federal Reserve will raise interest rates amid signs the U.S. labor market is slowing.

There’s a 27 percent chance policy makers will increase borrowing costs by their September meeting, down from 34 percent odds before the Labor Department issued its monthly payroll report on April 3, according to data compiled by Bloomberg. U.S. employers added the fewest workers since December 2013 last month, the data showed.

RBA Meeting

The spread between 10-year yields on Aussie bonds and Treasuries reached its narrowest level in 14 years last month as more than two dozen central banks, including those in Australia, Canada and Europe, eased policy this year.

“U.S. Treasury yields are coming down but they are still at relatively high levels,” Barclays’s Kadota said. “With global central banks lowering their policy rates, if the RBA also follows suit, that would still make Treasuries appealing.”

Traders are betting there’s a 97 percent probability the RBA will reduce the cash rate by a quarter point to a record 2 percent tomorrow, according to swaps data compiled by Bloomberg.

U.S. government securities returned 2.3 percent this year through April 3, according to the Bloomberg U.S. Treasury Bond Index, after gaining 6.2 percent last year. The securities have advanced for five consecutive quarters, the longest winning streak in the data starting in March 2010.

Fed Minutes

Markets need to monitor minutes on April 8 of the Fed’s March 17-18 meeting for clues on the pace of future tightening, Barclays’s Kadota said. At the meeting, the central bank lowered its projections on rates, inflation and growth.

Fed Chair Janet Yellen said March 27 she expects to raise rates this year, and subsequent increases will be gradual. Fed Bank of Atlanta President Dennis Lockhart said April 1 that although first-quarter economic activity slowed, the central bank should be ready to boost rates from June to September.

The U.S. 10-year yield dropped seven basis points on April 3 as the Labor Department said U.S. payrolls increased by 126,000 in March, less than the most pessimistic forecast in a Bloomberg survey. The unemployment rate remained at 5.5 percent.

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