Treasuries Extend Best Annual Start Since 2008 Before Jobs Data

  • Traders look to Friday report for clues to path of Fed policy
  • Initial jobless claims rose last week to highest in two months

Treasuries advanced, extending their best first-quarter gain since the financial crisis, as investors await a government jobs report for hints about U.S. economic strength and the Federal Reserve’s path on interest rates.

Benchmark 10-year note yields fell to the lowest in a month as traders pushed back bets on the timing of the next rate increase. A Labor Department report Friday will show the U.S. added 205,000 jobs in March while wage growth held steady at a 2.2 percent annual rate, according to a Bloomberg survey of economists.

Treasuries have returned 3.1 percent this year, the best start to a year since 2008, according to Bank of America Merrill Lynch index data, amid financial-market volatility and concern that global growth is slowing. Fed officials this month lowered their median projection to two interest-rate increases in 2016 from four at the December meeting. Fed Chair Janet Yellen said this week that an uncertain global environment calls for a more gradual approach to tightening policy.

“The tone of the market has changed dramatically” since Yellen spoke, said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “The rate structure changed, the curve changed, and today is a continuation of that.’’

Employment Data

The 10-year note yield fell five basis points, or 0.05 percentage point, to 1.77 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data, the lowest since Feb. 29. The price of the 1.625 percent security due in February 2026 rose 15/32, or $4.69 per $1,000 face amount, to 98 22/32.

Yields on two-year notes, the security most sensitive to Fed policy expectations, fell four basis points to 0.72 percent, the lowest since Feb. 18.

The number of applications for unemployment benefits in the U.S. climbed last week to a two-month high, data from the Labor Department showed on Thursday ahead of Friday’s March payroll report. A private report released Wednesday showed companies added 200,000 workers in March.

Traders see a 20 percent chance the Fed will raise interest rates by June, down from a 38 percent probability assigned on March 28, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.

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