Treasury 10-year notes rose for the first time in three days as accelerating U.S. job losses offset concern that a flood of government debt will overwhelm demand.
Government bonds gained before a Labor Department report tomorrow forecast to show payrolls dropped by more than a half million in January. The yield curve was near the steepest in more than two months.
“It’s going to be ugly, so clearly the market is positioning for that,” said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking unit of Credit Agricole SA. “Once you get payrolls out of the way, the market will restart focusing on supply.”
The yield on the 10-year note fell three basis points, or 0.03 percentage point, to 2.91 percent at 7:59 a.m. in New York, according to BGCantor Market Data. The price of the 3.75 percent security due in November 2018 rose 7/32, or $2.19 per $1,000 face amount, to 107 3/32.
Ten-year note yields, which reached a record low of 2.04 percent on Dec. 18, averaged 4.29 percent over the past five years. The yield will decline to 2.5 percent by the end of the first quarter before climbing to 4.2 percent by year-end as the supply concern and the prospect for an economic recovery reduce the value of fixed-income investments, Green said.
Unemployment climbed to 7.5 percent in January, and payrolls fell by 540,000, the 13th consecutive decrease, according to the median forecast of 74 economists surveyed by Bloomberg News. The Labor Department’s report is due tomorrow.
Jobless Benefits
The number of people receiving unemployment benefits rose to a record 4.795 million in the week ended Jan. 25, according to a separate Bloomberg survey of economists before a Labor Department report today.
Treasuries fell yesterday as the government said it will auction a record $67 billion in notes and bonds next week.
“The fixed-income markets are very nervous about the amount of supply pressure in the near term,” Sean Maloney, a fixed-income strategist at Nomura International in London, wrote in a report today. “On this basis, the risk skew for debt markets will be toward higher yields.”
Karthik Ramanathan, the Treasury’s chief debt manager, told reporters yesterday he’s confident demand will be sufficient to keep borrowing costs contained.
The difference between yields on two- and 10-year notes was 1.95 percentage points, near the widest in more than two months. The spread was 1.89 percentage points at the end of last week.
The U.S. will sell $32 billion in three-year notes on Feb. 10, $21 billion in 10-year notes on Feb. 11 and $14 billion in 30-year bonds on Feb. 12. The Treasury Department also said it plans to auction seven-year notes for the first time since 1993.
Fed’s Statement
Fed policy makers said in a statement on Jan. 28 they’re prepared to buy Treasuries to resuscitate lending. The central bank is seeking to improve conditions in credit markets after they froze last year, according to the statement.
“This makes it even more likely the Fed will have to purchase long-term Treasury debt in the coming weeks so as to avoid an even larger rise in yields,” Deutsche Bank AG economists Joe LaVorgna and Carl Riccadonna in New York wrote in a report yesterday. The company is one of 17 primary dealers required to participate in Treasury auctions.
Yields indicate Fed Chairman Ben S. Bernanke and his fellow policy makers have yet to thaw private debt markets after cutting the benchmark interest rate to a range of zero to 0.25 percent and pumping money into the financial system.
Average 30-year fixed mortgage rates rose to 5.10 percent in the week ended Jan. 29 from 4.96 percent 14 days earlier, according to home-loan finance company Freddie Mac.
Mortgage Rates
Thirty-year mortgage rates are about 2.26 percentage points more than 10-year Treasury yields, widening from a gap of 1.64 percentage points five years ago.
The London interbank offered rate that banks say they charge each other for three-month dollar loans stayed at the highest level in more than three weeks. The rate was little changed at 1.24 percent today, according to the British Bankers’ Association. The overnight rate was at 0.32 percent.
The difference between what banks and the Treasury pay to borrow for three months, the so-called TED spread, narrowed to 0.95 percentage point, from 4.64 percentage points in October. The gap was 0.27 percentage point on average from 2002 through 2006, before the credit crisis began in 2007.
