BLBG:Treasuries Fall, Heading for Weekly Loss, on U.S. Payroll Gain Speculation
Treasuries fell, extending their steepest weekly loss since October, before a government report today that economists said will show U.S. jobs growth quickened last month, confirming a pickup in the world’s largest economy.
Ten-year yields approached a two-and-a-half week high. James Bullard, president of the Federal Reserve Bank of St. Louis, said recent reports point to stronger growth and the central bank shouldn’t rush to ease monetary policy further. The 30- and 10-year securities headed for their first weekly loss in three as investor bets that Europe’s leaders are moving closer to containing the region’s debt crisis sapped demand for the safest assets.
“Payrolls will be the major driver today,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “Treasuries have come under pressure this week and hopes for a strong number are in place.”
Benchmark 10-year yields were three basis points higher at 2.11 percent at 8:40 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due November 2021 changed hands at 99. The rate reached 2.14 percent yesterday, the highest since Nov. 14, and it has advanced 15 basis points this week, the most since the five-day period ended Oct. 14.
The yield will rise to 2.18 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. SMBC Nikko’s Shimazu predicts 2.3 percent.
Jobs Data
The U.S. added 125,000 jobs in November, compared with 80,000 in October, the Labor Department will say today, according to the median estimate in a Bloomberg News survey of economists. The jobless rate probably held at 9 percent, based on the responses. The report is due at 8:30 a.m. Washington time.
U.S. manufacturing expanded in November at the fastest pace in five months, the Institute for Supply Management in Tempe, Arizona, reported yesterday. The New York-based Conference Board said last month that its index (MXWD) of consumer confidence rose in November by the most since April 2003.
“The current yield level is too low given the growth outlook,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “Yields are likely to rise gradually as we continue to see good numbers in the U.S. economy.”
Returns in 2011
Treasuries remain one of the best-performing bond markets this year even after the week’s declines as Europe’s debt crisis soured sentiment toward the region’s assets.
Treasuries due in 10 years and more have returned 18 percent in the past six months, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for currency changes. Benchmark 10-year yields are about 44 basis points above the record low of 1.67 percent set Sept. 23.
The MSCI All Country World Index of stocks has handed investors a 6.3 percent loss this year.
“Money is flowing from the euro to Treasuries,” said Yoshiyuki Suzuki, who helps oversee the equivalent of $70.7 billion as the Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co. “The upside in yields will be limited.”
Germany and France are pushing for closer economic ties among euro nations and tougher enforcement of budget rules to counter the region’s debt crisis, snubbing investor pleas to back an expanded European Central Bank role.
Fed Action
This week’s drop in Treasuries was driven by a Fed announcement on Nov. 30 that the premium banks pay to borrow dollars overnight from central banks will decline by half a percentage point to 50 basis points.
The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, rose by 36 basis points in two days. It was 1.21 percentage points below the euro interbank offered rate as of yesterday. The two-day increase was the most since December 2008 when credit markets were starting to thaw after seizing up earlier in the year.
Fed officials are debating whether the central bank should resume large-scale purchases of securities to push down an unemployment rate that has been stuck at 9 percent or higher since April.
The Fed is scheduled to sell as much as $8.75 billion of Treasuries due in 2013 today as part of a plan announced in September to replace $400 billion of shorter maturities in its holdings with longer-term debt to cap borrowing costs. It also plans to buy as much as $2.75 billion of securities due from 2036 to 2041 today.
“The data have come in stronger than expected, so I think the logical thing now is to wait and see,” the Fed’s Bullard said in an interview in New York yesterday at the Bloomberg Hedge Fund Conference hosted by Bloomberg Link. “See if we continue to get a good read on the holiday season and start out the New Year stronger or weaker, and also assess the situation in Europe and see how that feeds back to the United States.”
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
