BLBG: Treasuries Are Little Changed With Yields Near Record Lows
By Dakin Campbell and Gavin Finch
Dec. 4 (Bloomberg) -- Treasuries were little changed, with yields near record lows, after a report showed more Americans are collecting jobless benefits than at any time in the last 26 years, signally that the recession is deepening.
U.S. notes pared earlier gains as the European Central Bank cut interest rates by the most in its history and the Bank of England reduced rates down to the lowest since 1951. Traders raised bets the Federal Reserve will cut the target interest rate 75 basis points to 0.25 percent on Dec. 16.
“Investors are shunning any kind of debt security unless it is U.S. gilt-edged backed,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley’s individual-investor clients. The central bank cuts “are just a not so subtle reminder that all of the central banks are flooding the system with liquidity.”
The 10-year note yield was little changed at 2.63 percent at 8:44 a.m. in New York, according to BGCantor Market Data. The yield fell to 2.54 percent earlier, the lowest level since the Fed’s daily records started in 1962. The 3.75 percent security due November 2018 rose 8/32, or $2.50 per $1,000 face amount, to 109 24/32.
Two-year yields were little changed at 0.89 percent, after sliding to an all-time low of 0.81 percent. The 30-year yield was little changed at 3.14 percent after dropping to a record 3.06 percent.
The yield on the 10-year may fall to between 2 percent and 2.25 percent in the coming months, said Peter Mueller, a fixed- income strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender.
Futures on the Chicago Board of Trade showed 68 percent odds the Fed will lower its 1 percent target rate by 75 basis points on Dec. 16, rising from 52 percent yesterday. The rest of the bets are for a half-a-percentage-point cut.
Worldwide Rate Cuts
The ECB lowered the benchmark lending rate by 75 basis points to 2.5 percent, delivering the biggest interest-rate cut in its 10-year history after the economic slump deepened and the inflation rate plunged. The Bank of England cut its benchmark interest rate 1 percentage point to 2 percent, the lowest level since 1951, while Sweden’s Riksbank lowered its rate 1.75 percentage points to 2 percent. New Zealand’s central bank and Bank Indonesia also reduced rates.
A larger-than-anticipated 4.09 million fired workers received U.S. government unemployment checks in the week ended Nov. 22, the most since December 1982, the Labor Department said today. Initial jobless claims declined by 21,000 to 509,000 in the week that ended Nov. 29, which included the Thanksgiving Day holiday.
Non-farm payrolls shrank by 330,000 in November, the most since 1982, a separate Bloomberg survey showed. The Labor Department figures are due tomorrow.
“Yields are going to fall,” said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has $59.5 billion in assets. “The U.S. economy is in recession and it will continue throughout next year.” Okumoto said he’s considering adding to his Treasury holdings.
To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net.
