BLBG: Treasuries Head for Fifth Weekly Gain as Jobs Lost in November
By Cordell Eddings and Dakin Campbell
Dec. 5 (Bloomberg) -- Treasury yields fell to record lows after a report showed U.S. employers cut jobs in November at the fastest pace in 34 years as the recession deepened.
Gains drove yields on two-, 10- and 30-year securities to the lowest levels since the Treasury began regular sales of the debt. Bonds have rally for a fifth week as traders raised bets the Federal Reserve will cut interest rates near zero and Fed Chairman Ben S. Bernanke said the central bank may buy Treasuries to target long-term rates to revive the economy.
“This an absolutely shocking number,” said James Demasi, a fixed-income strategist at brokerage Stifel Nicolaus & Co. in Baltimore. “This is supportive of the Treasury market and we should see yields go lower.”
The yield on the two-year note fell 2 basis points to 0.80 percent at 8:47 a.m. in New York, according to BGCantor Market Data. The 1.25 percent security maturing in November 2010 gained 1/32, or 31 cents per $1,000 face value, to 100 28/32. The yield tumbled 18 basis points in the week, falling to 0.77 percent yesterday, an all-time low.
The 10-year yield was 2.53 percent today, after dropping to a record 2.50 percent. The security is also set for a fifth weekly gain, with the yield declining 40 basis points this past week.
Non-farm payrolls in the U.S. shrank by 533,000 in November, the 11th month that companies have cut jobs, the Labor Department said today. That was above the 335,000 median estimate of 73 economists in a Bloomberg News survey.
‘Less Aggressively Bearish’
“The components are a little less aggressively bearish for the economy,” said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world’s largest inter-dealer broker.
Futures on the Chicago Board of Trade show 80 percent odds that policy makers will lower the 1 percent target rate for overnight lending between banks by 75 basis points on Dec. 16, up from 32 percent a week ago. The rest of the bets are for a 50-basis-points cut.
Central banks in the euro region, the U.K., Sweden, Australia, Indonesia, New Zealand and Thailand cut interest rates this week as policy makers stepped up their response to the credit crisis. The Bank of Thailand, European Central Bank and Reserve Bank of New Zealand all lowered borrowing costs by record amounts.
U.S. Unemployment
Treasuries rose for a seventh day yesterday after a Labor Department report showed the number of Americans on unemployment benefit rolls rose to 4.09 million in the week ended Nov. 22, also the most since 1982.
The difference in yield between two- and 10-year notes narrowed to 1.72 percentage points before today’s jobs report, the least since September, as traders bet longer-maturity debt will outperform.
Investors fleeing to the safety of debt have driven returns on U.S. securities to 12.3 percent this year while the S&P 500 stock index lost 42 percent. Prudential Financial Inc., the second-biggest U.S. life insurer, said yesterday it plans to sell its stake in Wachovia Securities and seek aid from the U.S. government as it braces for a fourth-quarter loss, adding to signs of a prolonged credit crisis.
The Fed said yesterday it plans to buy Fannie Mae, Freddie Mac and Federal Home Loan Bank debt maturing over the next two years in its first purchases under a new program aimed at reducing mortgage costs.
Buying Bills
“The Fed is going to be buying Treasuries in the long end, bringing down rates along the entire curve,” said Marc Fovinci, who helps invest $2.8 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. “We have a credit crunch and nobody knows where the losses are buried, how big they are and who might still go under. We’re going to have demand for Treasuries.”
Demand for the safest, shortest maturities have pushed three-month bill rates down to 0.01 percent this past week. Thirty-year yields rose 1 basis points to 3.05 percent before the report, paring a weekly decline to 37 basis points.
Money-market rates show banks are reluctant to lend to each other. The difference between what lenders and the Treasury pay to borrow money for three months, the so-called TED spread, was little changed 218 basis points today. The spread reached 464 basis points on Oct. 10, the most since Bloomberg began tracking the figure in 1984.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net;
