By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices extended gains on Wednesday, pushing 10-year yields to the lowest since January 2009, after ADP said companies unexpectedly cut 39,000 private jobs in September.
Yields on 5-year notes fell to a record low.
The ADP report raised concerns that Friday’s more closely followed nonfarm payrolls report issued by the government may come in weaker and make it more likely that the Federal Reserve will announce a new bond-purchase plan — potentially mammoth in scale — to help support economic growth.
“The weaker labor market read from ADP has aided the ongoing bid for Treasurys,” said Ian Lyngen, bond strategist at CRT Capital Group.
Yields on 10-year notes (UST10Y 2.37, -0.10, -4.09%) , which move inversely to prices, fell 10 basis points to 2.38%, the lowest since January 2009. A basis point is 0.01%.
Five-year note yields (UST5YR 1.13, -0.07, -5.68%) declined 7 basis points to 1.13%, touching the lowest in history.
Yields on 2-year notes (UST2YR 0.38, -0.02, -5.90%) fell 4 basis points to 0.38%, the biggest decline in about 2 weeks. The yield set new record low.
Having the 5-year yield reach record lows, along with 2-year debt, indicates “an unfortunate investor comfort with a very slow, weak economic growth accompanied by very low inflation” and the Fed remaining accommodative for a long time, said Kevin Giddis, president of fixed-income capital markets at Morgan Keegan.
ADP’s reading on private employment, based on a sampling culled from businesses for which ADP processes payrolls, was below economists’ average expectation for a 20,000 gain.
“The combination of bad data and very pointed comments by Fed officials leave one to believe that the Fed will be launching a “quantitative easing rocket” in the near future and traders don’t want to miss the ride,” Giddis said.
On Friday, the Labor Department will release its monthly employment report. Economists expect nonfarm payrolls, including government positions, to fall 8,000 in September, largely due to continued reductions in workers hired to conduct the U.S. Census.
Analysts will pay more attention to the changes made by the private sector, which is expected to add 85,000 jobs.
“With 8.4 million jobs lost in the downturn, we would need to be creating 250,000 to 300,000 per month to affect the unemployment rate,” Dan Greenhaus, chief economic strategist at Miller Tabak, wrote in a note. “In virtually any scenario, that is not happening.”
The Fed also continued smaller purchases of Treasurys as part of an existing plan to reinvest cash from maturing mortgage-backed securities and housing agency debt back into the bond market to support the economic recovery.
The New York Fed bought $2.069 billion in debt maturing in 2013 to 2014, roughly the amount analysts anticipated. See results of Fed buybacks.
