Treasuries Gain Most Since August on Concern Growth Is SlowingCordell Eddings and Daniel Kruger
Treasuries soared the most since August after U.S. employers added fewer jobs than forecast, adding to speculation that the growth rate of the world’s biggest economy is slowing.
Ten-year note yields fell for a fourth week after payrolls grew by 88,000 workers last month, the smallest in nine months, even as the unemployment rate declined, the Labor Department said. Gauges of company hiring and U.S. services industries also trailed forecasts. Federal Reserve Chairman Ben S. Bernanke may assess the jobs growth and the duration of the central bank’s bond-buying plan in an April 8 speech in Atlanta.
“The labor market is still weak and, until that changes, Treasuries will continue to benefit” said Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York. “It’s too early to tell whether we have downshifted from what was a fairly ebullient growth in the first quarter, but a slowdown certainly remains a concern.”
Ten-year note yields fell 14 basis points, or 0.14 percentage point, to 1.71 percent this week in New York, according to Bloomberg Bond Trader data. They touched 1.68 percent, the lowest level since Dec. 12. The price of the 2 percent note maturing in February 2023 rose 1 7/32, or $12.19 per $1,000 face value, to 102 18/32.
The 10-year yield traded below its 200-day moving average of 1.74 percent yesterday for the first time since Jan. 2 after closing below its 100-day moving average of 1.83 percent on April 3 for the first time since Dec. 11. Moving averages are indicators of momentum.
Treasury 30-year bond yields fell 22 basis points, the most since June, to 2.88 percent after touching 2.84 percent, the lowest since December. It traded below its 200-day moving average of 2.9 percent for the first time this year.
Speculative long positions in the five-year note, or bets prices will rise, outnumbered short positions by 157,564 contracts on the Chicago Board of Trade in the week ending April 2, rising 24 percent from a week earlier, according to U.S. Commodity Futures Trading Commission data. That’s the highest since Sept. 21.
Yields on five-year debt fell seven basis point to 0.7 percent.
Net-long positions in 10-year note futures also rose, outnumbering short positions by 110,692 contracts, the most since the week ending March 1.
The growth in payrolls followed a revised 268,000 gain in February that was higher than first estimated, Labor Department figures showed. The median forecast of 87 economists surveyed by Bloomberg projected an advance of 190,000. The jobless rate fell to 7.6 percent from 7.7 percent, the lowest since December 2008, reflecting a 496,000 decline in the size of the labor force.
“Without sustained job growth, there will not be a material change in economic conditions, and that means Treasuries will continue to be strong,” said James Camp, managing director of fixed income in St. Petersburg, Florida, at Eagle Asset Management Inc., which oversees $21.5 billion. “There has been a cry to short Treasuries, and those have been the worst trades in the capital markets.” A short position is a bet that an asset’s value will decline.
The economy added an average of 179,000 people a month to nonfarm payrolls in 2011 and 2012, Labor Department data show. The jobless rate had stayed above 8 percent since February 2009 until it broke the trend in September.
U.S. government securities rose to the costliest level this year. The 10-year term premium, a model that includes expectations for interest rates, growth and inflation, was at negative 0.82 percent yesterday, the most expensive level since Dec. 14. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
“You can’t put lipstick on this pig and call it pretty, but one month of bad jobs data doesn’t mean we are headed back into recession,” said Dan Heckman, a fixed-income strategist at U.S. Bank Wealth Management, a unit of U.S. Bancorp, which manages $110 billion. “Treasuries are expensive, and the market is getting a little bit ahead of itself, especially with supply coming next week.”
The Treasury will auction $66 billion of notes and bonds next week, selling $32 billion in three-year notes on April 9, $21 billion in 10-year debt the next day and $13 billion in 30-year bonds on April 11.
The yield on Treasury 10-year notes fell earlier this week as investors sought U.S. debt after policy makers in Japan and the euro zone promised more easing.
New Bank of Japan Governor Haruhiko Kuroda said the central bank would double its monthly asset purchases in a bid to encourage inflation, while European Central Bank President Mario Draghi said the ECB stands ready to cut interest rates and consider additional measures to boost growth as the region’s sovereign-debt crisis enters its fourth year.
The U.S. central bank has been buying $85 billion of bonds each month since the start of the year, $45 billion in Treasuries and $40 billion of mortgage debt, in an effort to hold down borrowing costs and encourage economic growth. It has kept its benchmark interest-rate target for overnight lending between banks in a range of zero to 0.25 percent since 2008 to support the economy.
“We are reminded that the global theme in monetary policy is aggressive easing,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. The “decision by the Bank of Japan to double its monetary base is further evidence of this trend.”
Fed policy makers reiterated March 20 the rate will stay near zero as long as unemployment is above 6.5 percent and inflation is projected to be no more than 2.5 percent. They said the purchases will continue until employment improves. Bernanke is giving the keynote address to the Fed Bank of Atlanta 2013 Financial Markets Conference on April 8.
Swaps traders pushed back expectations for the Fed’s first interest-rate increase since 2006 to about November 2015 after yesterday’s employment report. On April 4, OIS showed July 2015 as the likely date for a rate increase.
The central bank’s next policy meeting is scheduled for April 30-May 1.