Treasuries Surge After Jobs Figures Cast Doubt on Fed Increase

  • Ten-year note yield falls below 2%, first time since August
  • Futures show traders leaning toward March Fed liftoff

Treasuries rallied, pushing the 10-year yield below 2 percent for the first time since August, after a weaker-than-forecast U.S. labor report fueled bets the Federal Reserve will wait until next year to boost interest rates.

Government debt prices advanced as the Labor Department said the nation gained 142,000 jobs in September, following a revised increase of 136,000 in August. The median forecast in a Bloomberg News survey of economists was for an addition of 201,000. The jobless rate remained at 5.1 percent, the lowest since 2008.

While Fed Chair Janet Yellen said last week that she was among policy makers who believe a boost would likely be appropriate this year, Friday’s data undermined investors’ confidence in that stance. March is the first month where futures indicate a greater-than-50 percent probability that the central bank will lift its benchmark rate from near zero, where it’s been since 2008.

"I really don’t see how the Fed could begin to hike or normalize rates this year-- there’s no immediacy," said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York.

The yield on the benchmark 10-year Treasury fell 12 basis points, or 0.12 percentage point, to 1.92 percent as of 9:32 a.m. in New York, according to Bloomberg bond trader data. The yield sank to the lowest since it touched 1.9 percent on Aug. 24. The price of the 2 percent security due in August 2025 rose about one point, or $10 per $1,000 face amount, to 100 11/16.

2015 Fade

Traders see a 30 percent likelihood that the Fed raises rates by its December meeting, down from almost 60 percent a month ago, according to futures data compiled by Bloomberg. The probability for January is 37 percent, and 51 percent for March. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

Expectations for a 2015 increase had dimmed since July amid the market turmoil following China’s currency devaluation and as the Fed lowered its outlook for future increases at its September meeting.

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