Treasuries Rise as Below-Forecast Economic Growth Fuels DoubtsSusanne Walker
Treasuries rose after a report showed the U.S. economy expanded at a weaker-than-forecast pace, reinforcing doubts about the strength of the expansion as the Federal Reserve considers when to raise interest rates.
The benchmark 10-year note yield fell for the first time in three days as Fed Chair Janet Yellen said although she expects to raise interest rates this year, subsequent increases will be gradual without following a predictable path as the Fed will focus on the strength of economic data.
“The data we’ve seen of late have been relatively weak,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. Yellen “wanted to be as clear as possible that they will be data dependent. The Fed’s tightening cycle is not going to be very consistent.”
The U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 1.96 percent at 4:59 p.m. in New York, according to Bloomberg Bond Trader data, The price of the benchmark 2 percent note due February 2025 gained 1/4, or $2.50 per $1,000 face amount, to 100 11/32.
The yield gained three basis points this week after falling 31 basis points during the previous two weeks. The yield touched 1.85 percent March 25, the least since Feb. 6.
U.S. securities have returned 0.2 percent this month and 1.4 percent this year through Thursday, based on Bloomberg bond indexes. They returned 6.2 percent last year.
“The actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation,” Yellen said Friday in remarks prepared for delivery in San Francisco.
The economy grew at a 2.2 percent annual rate last quarter, compared with a forecast for 2.4 percent in a Bloomberg survey of economists.
Haven demand for Treasuries increased Friday as Germany said it’s yet to receive Greece’s proposals for economic reforms, which are crucial to unlocking financial aid to the Mediterranean nation.
Greece aims to submit its reform commitments by March 30 with a view to euro-area finance ministers meeting to approve the list on April 1, a Greek Finance Ministry official said in Athens Friday. A meeting or call with creditor officials may have to take place during the weekend, the official said.
German two-year rates dropped to minus 0.256 percent, the lowest since Bloomberg began collecting the data in 1990. Yields in Italy and Spain rose.
“Euro-zone fears” are affecting the market, said David Keeble, head of fixed-income strategy in New York at Credit Agricole CIB.
Some investors purchased Treasuries to increase the duration of their portfolios to match benchmarks at the end of the month, such as the Barclays Plc’s U.S. Aggregate Index. The Barclays index will extend its duration, which calculates how much prices change when yields rise or fall, by 0.10 year on April 1, matching the extension in March.
“People are buying ahead of the end-of-month index extensions,” Keeble of Credit Agricole said.
U.S. employers added 248,000 jobs in March, according to a Bloomberg News survey of economists before the Labor Department releases the report on April 3. The unemployment rate remained at 5.5 percent, the lowest since 2008, according to the survey.
“People will look at next week’s payroll’s numbers to evaluate when the Fed’s going to move,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 22 primary dealers that trade with the Fed.