- Risk aversion gripping markets before nonfarm payrolls data
- Benchmark 10-year yield down five basis points this week
Treasuries rose on Friday for a second day while futures contracts on the Standard & Poor’s 500 Index fell as investors reduced exposure to risks in favor of haven assets before the U.S. employment report for August.
Benchmark 10-year notes headed for a weekly gain as investors cut back on expectations for the first interest-rate increase by the Federal Reserve since 2006 this month amid turmoil in global markets. Employers in the U.S. added 217,000 jobs in August, versus 215,000 in July, according to a Bloomberg survey of economists.
“Risk-off sentiment in Asia is supporting U.S. Treasuries,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in London. “We see risks as asymmetric into payrolls data. A strong report is likely to be discounted by the market, given that global developments can still weigh heavily on the Fed’s decision to hike.”
Treasury 10-year note yields dropped three basis points, or 0.03 percentage point, to 2.13 percent as of 6:59 a.m. New York time, based on Bloomberg Bond Trader data. The yield has declined five basis points this week. The 2 percent security due in August 2025 rose 9/32, or $2.81 per $1,000 face amount, to 98 27/32.
S&P futures contracts expiring this month fell 1 percent.
The odds of an increase in U.S. interest rates in September have fallen to 26 percent from 40 percent at the end of July, according to futures data compiled by Bloomberg. The probability by October is 40 percent, and by December it’s 55 percent.
Recent data suggested the U.S. economic expansion maintained its momentum. The Institute for Supply Management’s non-manufacturing index published on Thursday saw the second-highest reading since 2005. A private report Wednesday showed hiring was on pace in August, while a separate Fed report showed the U.S. economy expanded across most regions and industries.
Yet, concern mounted that the economic slowdown in China will have a ripple impact on emerging-market economies, and higher U.S. interest rates will exacerbate the problem.
“There are compelling reasons for the Federal Reserve not to raise interest rates,” said Pascal Blanque, Paris-based global chief investment officer at Amundi which manages over $1 trillion in assets. “There are risks to an early move, remembering 1937, that has been remembered as a big mistake for the Fed. My view is that there are reasons not to move. Even if they move, it would be little.”