Treasuries Decline Before U.S. Jobs Report Amid Fed Speculation
Treasuries fell for the first time in three days as traders speculated the June employment report may be strong enough for the Federal Reserve to pull back on its asset-buying program.
The Labor Department is forecast to say on July 5 the U.S. added 165,000 jobs last month after a private report showed companies increased payrolls. Fed Chairman Ben S. Bernanke said June 19 policy makers may slow the purchases this year and end them in 2014 if economic growth meets policy makers’ goals. Treasuries rose earlier as investors sought safety after two of Portugal’s ministers resigned and Egyptian President Mohamed Mursi defied protests demanding his resignation.
“Friday is the number that matters -- this is just a warm-up,” said Dan Greenhaus, chief global strategist in New York at broker-dealer BTIG LLC. “People are so on edge that, if the number is 215,000 or above, there’s upside risk to yields. Most discussions are centered on overseas issues, particularly Portugal.”
The yield on the 10-year yield rose three basis points, or 0.03 percentage point, to 2.50 percent at 2 p.m. New York time, according to Bloomberg Bond Trader prices. It earlier fell to 2.41 percent, the least since June 21. The 1.75 percent note maturing in May 2023 fell 9/32, or $2.81 per $1,000 face value, to 93 14/32.
The Securities Industry and Financial Markets Association recommended an early close at 2 p.m. New York time before the observance tomorrow of the July 4 holiday in the U.S.
Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, fell 13 percent to $240 billion from $249.75 billion yesterday. It closed at $445 billion on June 28. The 2013 average is $321.8 billion.
Treasury 10-year yields have dropped since rising to 2.66 percent on June 24, the highest level since August 2011.
Yields will be little changed at 2.42 percent by Dec. 31, according to Bloomberg surveys of banks and securities companies with the most recent predictions given the heaviest weightings. The estimate has increased from this year’s low of 2.14 percent in January.
The benchmark yields briefly erased a drop today after ADP Research Institute said U.S. companies added 188,000 jobs in June, compared with a forecast of 160,000 jobs in a Bloomberg News survey of economists.
A separate report showed jobless claims decreased by 5,000 to 343,000 in the week ended June 29, from a revised 348,000 in the prior period that was higher than initially reported, the Labor Department said in Washington.
The ADP “number is a very strong number and the market is repricing closer back to the 2.50 percent level until we get to nonfarm payrolls,” said Dan Mulholland, head of Treasury trading at BNY Mellon Capital Markets in New York. “We expect the market to stay within two basis points of 2.50 percent going into Friday.”
Yields dropped after the Institute for Supply Management’s non-manufacturing index dropped to 52.2 last month, the lowest reading since February 2010, from 53.7 in May, a report from the Tempe, Arizona-based group showed today. The median forecast in a Bloomberg survey called for a rise to 54. A reading greater 50 indicates expansion in the industries that make up almost 90 percent of the economy.
The U.S. unemployment rate declined to a four-year low of 7.5 percent, from 7.6 percent, according to 81 economists in a Bloomberg News survey before the report later this week.
U.S. debt gained earlier as Portuguese Foreign Affairs Minister Paulo Portas and finance chief Vitor Gaspar both quit, threatening the stability of the ruling coalition and pushing up the nation’s borrowing costs.
Portuguese Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet terms of a 78 billion-euro ($101 billion) rescue plan monitored by the European Union, the International Monetary Fund and the European Central Bank.
In Egypt, Mursi defied calls for his resignation hours before a military-imposed deadline. The army said July 1 it would impose its own plan if Mursi didn’t end the turmoil and meet the people’s demands within 48 hours.
“What we’re seeing now is political uncertainty once again,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “That’s come back on the agenda after the limelight shifted to the Fed in recent weeks.”
The Fed is buying $85 billion of Treasuries and mortgage-backed securities each month to put downward pressure on borrowing costs, including $5.2 billion today in notes maturing between April 2018 and March 2019.
The U.S. announced it will sell $32 billion in three-year notes, $21 billion in 10-year debt and $13 billion in 30-year notes on three consecutive days starting July 9.