Sovereign Bonds Approach Lowest Level in 2014 on Fed Outlook

An index of sovereign bonds approached the lowest level this year after a bigger-than-expected U.S. employment gain boosted speculation that the Federal Reserve will raise interest rates in 2015.

The Bloomberg Global Developed Sovereign Bond Index slid to 110.41 at the end of last week, a level not seen since January. The gauge has dropped 2.6 percent in the past month, trimming 2014’s gain to 1.1 percent. The U.S. is scheduled to sell $61 billion of notes and bonds over three days starting tomorrow.

“Riskier assets like equities are more favorable than bonds,” said Hiroki Shimazu, the senior market economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank. “The U.S. economy continues to recover.”

The benchmark U.S. 10-year yield was little changed at 2.45 percent at 11:20 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2.375 percent note due in August 2024 was 99 12/32.

Treasuries are little changed in the past month, for a gain of 4.2 percent this year, based on the Bloomberg indexes.

The MSCI All-Country World Index of equities has declined 4.7 percent over a month, leaving it up 3 percent in 2014 including reinvested interest.

Australia’s 10-year yield fell two basis points today to 3.43 percent, while Japan’s was little changed at 0.515 percent. A basis point is 0.01 percentage point.

U.S. Jobs

The U.S. added 248,000 jobs in September, compared with a forecast for a 215,000 increase in a Bloomberg News survey of economists, based on a Labor Department report Oct. 3. The jobless rate fell to 5.9 percent from 6.1 percent.

The implied yield on 30-day federal funds futures expiring in October 2015 was 0.575 percent, indicating traders expect the central bank to increase the target for its main interest rate from the current range of zero to 0.25 percent by then.

Fed officials in September boosted their median estimate for the benchmark for the end of 2015 to 1.375 percent, compared with 1.125 percent in June. They have kept their target for the rate that banks charge each other on overnight loans close to zero since December 2008.

The Treasury plans to sell $27 billion of three-year notes tomorrow, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on Oct. 9.

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