Treasury yields set a five-week low as traders looked for evidence the U.S. economy will be strong enough for the Federal Reserve to lift interest rates in 2015.
The 10-year yield approached 2 percent, a level last seen during the August turmoil in financial markets, before a government report Friday that’s forecast to show the nation’s job growth is accelerating. A report Thursday showed U.S. manufacturing stagnated in September amid a stronger dollar and faltering overseas markets.
Most traders aren’t pricing in a Fed increase until 2016, although some officials have said since last month’s policy meeting that rates could still rise this year.
"Rates continue to move lower because economic activity around the globe is still subpar," said Tom Tucci, managing director and head of Treasuries trading in New York at CIBC World Markets Corp. "There’s a significant shift that’s happened in the economic outlook.”
Benchmark 10-year note yields were unchanged at 2.04 percent as of 4:59 p.m. New York time, based on Bloomberg Bond Trader data. The 2 percent security due in August 2025 closed at 99 21/32.
The yield touched 2.01 percent, the lowest since it sank to 2 percent on Aug. 25. On Aug. 24, it dipped below 2 percent for the first time since April.
The Fed chose to hold off on raising interest rates last month, citing low inflation and risks to the economy from global market turmoil.
U.S. employers probably added 201,000 jobs last month, after an increase of 173,000 in August, while the unemployment rate held at the lowest since 2008, according to the median estimate in a Bloomberg survey of economists.
The Institute for Supply Management’s factory index decreased to 50.2, the weakest since May 2013, the Tempe, Arizona-based group’s report showed Thursday. Fifty is the dividing line between expansion and contraction.
Traders see a 45 percent probability of a move by the Fed’s Dec. 15-16 meeting, according to futures data compiled by Bloomberg. The chances are 52 percent by the January meeting and 66 percent by the March gathering.
“Our house view is that the Fed hikes in December and that is also the Fed’s view,” said John Davies, an interest-rate strategist at Standard Chartered Plc in London. “But the market is refusing to price that in more fully. So payrolls will need to be really strong, I feel, for U.S. Treasury yields to move higher due to Fed hike concerns.”