Shorter-Term Treasuries Gain as Jobs Data Damp Fed SpeculationDaniel Kruger and Liz Capo McCormick
Treasury notes maturing in five years and less rose for the first time in three weeks as speculation cooled that the Federal Reserve may accelerate its unwind of monetary stimulus after a report showed U.S. employers added fewer jobs than forecast in March.
The difference in yield between five- and 30-year securities, which is known as the yield curve and viewed as a barometer of growth expectations, widened for the first time in four weeks, as speculation faded that a quickening economy would prompt the Fed to raise rates sooner than forecast next year. The Treasury will sell $64 billion of notes and bonds next week.
“We got a jump in the intermediate part of the curve” as the market pushed back Fed expectations, said Kathy Jones, a fixed-income strategist at Charles Schwab & Co. in New York. “The rise in the five-year yield had been pricing in something sooner rather than later. I don’t think that’s in the cards.”
Five-year note yields fell five basis points this week, or
0.05 percentage point, to 1.70 percent in New York. The 1.625 percent securities maturing in March 2019 gained 1/4, $2.50 per $1,000 face amount, to 99 21/32.
The benchmark 10-year yield was little changed at 2.72 percent. The Bloomberg U.S. Treasury Bond Index has fallen 0.4 percent this month, while gaining 1.4 percent this year.
Hedge-fund managers and other large speculators decreased their net-short position in five-year note futures in the week ending April 1, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 138,167 contracts on the Chicago Board of Trade. Net-short positions fell by 33,952 contracts from a week earlier.
The gap between the five- and 30-year yields rose nine basis points to 1.88 percentage points, the biggest weekly gain since the five days ended Feb. 7. It had narrowed to the least since 2009 last month after the Fed signaled that a strengthening economy may prompt policy makers to raise rates sooner than forecast next year.
The economy added 192,000 jobs last month, the Labor Department reported yesterday, trailing a median forecast for 200,000, according to a Bloomberg News survey of economists. The unemployment rate was unchanged at 6.7 percent, compared with a forecast for a drop to 6.6 percent.
“The market was way out over its skis looking for the big payroll number and the bad price action,” said David Robin, an interest-rate strategist in New York at Newedge USA LLC, an institutional-brokerage firm. “People were overextended and just too short ahead of the report. If you look at the moving average of the payroll data and other measures it shows the Fed isn’t even close -- they are like miles away from” tightening policy.
Colder-than-average U.S. winter weather spawned a debate about how much of the drop-off from last year’s pace of job gains is attributable to a softening in the economy.
The labor force participation rate, which measures the percentage of people actively working or seeking employment, rose to 63.2 percent in March from 63 percent the month before, Labor Department data showed. Weekly hours spent working rose to
34.5 last month from 34.2 in February.
Hourly wage growth was unchanged in March, trailing the median estimate for a 0.2 percent gain in a Bloomberg survey of economists.
Fed policy makers decided to trim buying further at their March 19 meeting, sticking to their plan for a gradual withdrawal from the program, designed to cap long-term borrowing costs and spur growth. The central bank has held its target for the federal funds rate virtually at zero since December 2008.
“The funds rate only moves if and when you get some form of velocity to the credit expansion they’ve tried to do,” said James Camp, a portfolio manager who oversees $5.5 billion in fixed income with Eagle Asset Management in St. Petersburg, Florida, a unit of Raymond James. “By velocity, I mean bank lending, wage growth, capital spending -- some sort of real economic activity, not just financial-market recovery.”
Demand for inflation protection has declined since Fed Chair Janet Yellen said March 31 that slack in labor markets showed that the central bank’s accommodative policies will be needed for some time. Yesterday’s jobs report added to an outlook for growth that won’t be sufficient to stoke inflationary pressures.
The difference between the yields on five-year notes and similar maturity TIPS, a gauge of the outlook for consumer prices over the life of the debt known as the break-even rate narrowed to 1.84 percentage points, the least since Jan. 2.
Ten-year note yields will climb to 3.38 percent by year-end, according to a Bloomberg survey of economists and analysts with the most recent forecasts given the heaviest weightings.
The U.S. plans to auction $30 billion of three-year notes on April 8, $21 billion in 10-year debt the next day and $13 billion of 30-year bonds on April 10. The sales will raise $13.5 billion of new cash, as maturing securities total $50.5 billion.