Treasuries Fall on Fed Bets in Longest Losing Streak Since 2009

Treasuries dropped for a sixth straight week, the longest stretch of losses in four years, as U.S. payrolls swelled while the jobless rate rose, keeping alive bets the Federal Reserve will cut back on monetary stimulus.

A measure of Treasuries volatility climbed to the highest in a year as investors weighed whether the central bank will slow its bond buying under quantitative easing as the economy improves. Ten- and 30-year yields approached 14-month highs. The U.S. will auction $66 billion in notes and bonds next week.

“A lot of people are still expecting the Fed to start talking about tapering in the near to intermediate term, but there is still a lot of uncertainty,” said Jay Mueller, who manages about $3 billion of bonds at Wells Capital Management in Milwaukee. “There has been nothing that clearly points to an acceleration or a slowdown in the Fed’s easing schedule just yet, which means more uncertainty until we get more news.”

The benchmark 10-year note yield rose four basis points, or 0.04 percentage point, to 2.17 percent this week in New York, according to Bloomberg Bond Trader prices. The price of the 1.75 percent security due in May 2023 fell 3/8, or $3.75 per $1,000 face amount, to 96 1/4. The longest losing streak before this ended on May 8, 2009, after yields increased for seven weeks.

Thirty-year bond yields added six basis points to 3.33 percent in their sixth consecutive advance, the longest since six weeks ended May 8, 2009.

Net Long

Hedge-fund managers and other large speculators reversed bets and wagered that 10- and 30-year Treasuries prices will increase, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets on a rise, on 10-year notes outnumbered short positions by 19,684 contracts on the Chicago Board of Trade in the week ended June 4. Last week, traders were net-short 35,505 contracts.

On 30-year bonds, longs outnumbered shorts by 2,369 contracts. Traders were net-short 27,251 contracts last week.

Payrolls swelled by 175,000 jobs in May after a revised 149,000 increase in April, Labor Department data showed yesterday. The median forecast in a Bloomberg survey was for a gain of 163,000. The unemployment rate rose to 7.6 percent from 7.5 percent, the lowest since December 2008, as more people entered the labor force.

U.S. employers added an average of 179,000 jobs a month to payrolls in 2011 and 2012, according to Labor Department data.

U.S. Auctions

The Treasury will auction $32 billion in three-year notes on June 11, $21 billion in 10-year debt the next day and $13 billion in 30-year bonds on June 13.

“With inflation low and the jobs number average, tapering is not certain to be on the front burner, but it will probably still happen at some point this year,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “From here, it will be interesting to see if these higher yield levels will attract buyers at next week’s supply.”

The consumer price index increased 1.1 percent in April from a year earlier. The Fed’s target is 2 percent.

Volatility in U.S. bonds as measured by the Bank of America Merrill Lynch MOVE index climbed to 84.8 on June 6, the highest since June 2012. It averaged 62.4 over the past year.

Treasuries have lost 1.7 percent since the end of April, according to Bank of America Merrill Lynch indexes, amid speculation the Fed will taper its purchases. The U.S. central bank, which next meets June 18-19, buys $85 billion of government and mortgage securities each month to hold down borrowing costs and spur economic growth.

Could Cut

Fed Chairman Ben S. Bernanke told Congress May 22 policy makers could cut the pace if the U.S. employment outlook shows a sustainable improvement. He also said tightening policy too soon would endanger the recovery.

Bill Gross, manager of the world’s biggest bond fund, said the Fed is unlikely to reduce asset purchases after the unemployment rate climbed from a four-year low and the jobs data showed hourly earnings were little changed at $23.89 in May from the previous month.

“I don’t think today’s report says anything about tapering at all,” Gross, co-founder and co-chief investment officer of Pacific Investment Management Co., said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. Bernanke “won’t taper. But I think ultimately in order to get a more normal economy, the Fed has got to move interest rates up to more normal levels.”

Reduction Forecast

The central bank will reduce its buying to $65 billion a month at the Oct. 29-30 meeting of the Federal Open Market Committee, according to the median estimate in a survey of 59 economists this week. In a similar poll before the Fed’s April 30-May 1 meeting, economists expected it to cut purchases to $50 billion in the fourth quarter.

Treasuries due in a decade or more are at almost the cheapest level since July 2011 relative to global peers with comparable maturities, according to Bank of America Merrill Lynch indexes. Yields on U.S. debt were 50 basis points higher than those in an index of other sovereign debt on June 6. Yields climbed to 60 basis points in the two trading days ending June 3, the cheapest in almost two years.

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