Treasury 10-Year Yields Drop From 3% High on Slowing Jobs Growth

Treasuries rose, pushing 10-year note yields down from 3 percent, after a report showed the U.S. added fewer jobs than forecast in August, damping speculation the Federal Reserve will slow bond purchases this month.

Yields advanced to a two-year high before the Labor Department report showed the economy added 169,000 jobs last month, compared with the median forecast of 180,000 in a Bloomberg News survey. Yields remained lower as Russian President Vladimir Putin said his nation will continue to assist Syria if it’s attacked. Fed policy makers are discussing whether the economy has improved enough to start reducing the asset purchases they have used to keep borrowing costs low.

“The payroll print was going to draw the line in the sand, and a stronger number would have confirmed a stronger probability of tapering,” said Sean Simko, who oversees $8 billion in assets at SEI Investments Co. in Oaks, Pennsylvania. “It creates a little more question around the possibility of tapering. Syria is secondary after the payroll data. It’s a lingering concern.”

The benchmark 10-year yield fell six basis points, or 0.06 percentage point, to 2.93 percent at 5 p.m. New York time, Bloomberg Bond Trader data showed. The 2.5 percent benchmark note due in August 2023 rose 1/2, or $5.00 per $1,000 face amount, to 96 9/32.

The yield fell as much as 13 basis points, the biggest drop on an intraday basis since Nov. 7, 2012. It earlier touched 3.005 percent, breaching 3 percent for the first time since July 2011.

Thirty-year bond yields fell two basis points to 3.87 percent.

Volume Jumps

Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose to the most in more than two months. Volume rose 7 percent to $440 billion, the most since June 28. The figure is down from a 2013 high of $662 billion reached on May 22 and up from a low of $148 billion on Aug. 9. The 2013 average is $315 billion.

Hedge-fund managers and other large speculators decreased their net-short positions in 10-year note futures in the week ending Sept. 3, from the most since May 2012, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions outnumbered long positions by 103,094 contracts on the Chicago Board of Trade, down 7 percent from 110,825 contracts a week earlier, according to the report.

Market ‘Correction’

U.S. government debt has lost investors 4.3 percent this year, which would be the biggest annual decline since data going back to 1978, according to Bank of America Merrill Lynch indexes as of yesterday.

The 14-day relative strength index for the Treasury 10-year yield dropped to 63 after reaching 69 yesterday. A reading of 70 is a level that some traders see as a sign the market measure has risen too fast and may be due to reverse course.

“We’ve had such an aggressive run, and the market had priced in so much, that it was ready for a correction,” said Kathy Jones, a New York-based fixed income strategist at Charles Schwab & Co., which has $2.12 trillion in client assets.

Treasury yields tumbled as the gain in workers last month followed a revised 104,000 rise in July that was smaller than initially estimated, Labor Department figures showed today in Washington. The unemployment rate fell to 7.3 percent, the lowest since December 2008. It has remained above 7 percent since November 2008.

‘Low Gear’

“The economy has been stuck in low gear for years and nothing seems to be breaking the paradigm of slow growth and slow job gains,” said Jay Mueller, who manages about $2 billion of bonds at Wells Capital Management in Milwaukee. “The data is bond-market friendly.”

Minutes of the Federal Open Market Committee’s July meeting released on Aug. 21 showed members were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to taper purchases this year if the economy strengthens, with a few saying a reduction may be needed soon.

The Fed will taper its monthly bond purchases to $75 billion from the current $85 billion pace, according to the median estimate of 34 economists surveyed today by Bloomberg News.

The central bank will keep purchases of mortgage-backed securities at the current $40 billion per month pace, while cutting Treasury bond purchases to $35 billion per month, from $45 billion, economists said.

Gross’s View

Bill Gross, manager of the world’s biggest bond mutual fund, said policy makers will go ahead with a plan to reduce the central bank’s unprecedented asset purchases even with the disappointing jobs report.

“I think Bernanke and company are committed to a taper,” Gross, co-founder Pacific Investment Management Co., said today in a radio interview on “Bloomberg Surveillance” with Tom Keene. “It will be taper ‘lite’ as opposed to a strong tapering.”

Fed funds futures show a 7 percent probability that the central bank will raise borrowing costs in January 2015 for the first time since the 2008 financial crisis.

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