BLBG: U.S. Ten-Year Notes Are Little Changed Before February Employment Report
Treasury 10-year notes were little changed amid speculation a report forecast to show accelerating growth in employment won’t be enough to persuade the Federal Reserve to curtail its plan to buy U.S. debt.
The yield on 10-year Treasury Inflation Protected Securities was also little changed as the Fed prepared to buy $1 billion to $2 billion of TIPS maturing from April 2013 to February 2041. Global government debt dropped yesterday after the European Central Bank signaled it may raise interest rates next month to contain inflation.
“Yields can’t go much higher unless the Fed is tightening, and the market knows that the Fed will take some convincing,” said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. “The U.S. market cannot ignore European short-term yields going up, and Treasuries will have to adjust.”
Yields on benchmark 10-year notes were little changed at 3.56 percent at 7:35 a.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security maturing in February 2021 dropped 2/32, or 63 cents per $1,000 face amount, to 100 18/32.
Ten-year notes were headed for their first five-day drop in four weeks after economic reports indicated accelerating growth, pushing the yields up 14 basis points.
Initial claims for unemployment insurance unexpectedly dropped last week, the Labor Department reported yesterday. The Institute for Supply Management’s index of non-manufacturing businesses increased in February to its highest level since August 2005. A separate ISM report on March 1 showed manufacturing in the U.S. grew last month at the fastest pace in almost seven years.
U.S. Employment
U.S. employment climbed by 196,000 in February, while the jobless rate increased to 9.1 percent from 9 percent, according to Bloomberg News surveys of economists before the Labor Department issues the figures today.
Atlanta Fed President Dennis Lockhart said yesterday he favors completing the purchases of government debt under quantitative easing because the economy faces risks.
“I don’t think the situation yet exists that would justify cutting the program off or reducing it, particularly this close to the end,” Lockhart told reporters after a speech in Tallahassee, Florida.
Fed Chairman Ben S. Bernanke said in congressional testimony this week that he hasn’t ruled out expanding the so- called quantitative-easing program.
German Debt Spread
Two-year notes yielded as much as 103 basis points less than equivalent-maturity German securities yesterday, the widest spread in more than two years, after ECB President Jean-Claude Trichet said an “increase of interest rates in the next meeting is possible.” The yield spread was at 98 basis points today.
Ten-year yields were within a half-percentage point of levels that Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest asset manager, said would lead him to buy.
“If rates creep up over 4 percent, I would be incrementally buying,” BlackRock’s Fink, who is based in New York, said in an interview yesterday with Bloomberg Television’s Erik Schatzker on the “InsideTrack” program. “Inflation may be in the short run a problem, but in the long run not.”
The yield will advance to 3.67 percent by midyear and to 3.93 percent by Dec. 31, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
The Fed’s efforts to spur the economy and rising oil prices may be fueling inflation expectations. The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices, reached 251 basis points yesterday, the most since July 2008. It was at 250 basis points today.
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
