By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices gained on Monday, pushing 10-year yields back toward 2%, as more traders returned from the Easter holiday to react to last week’s disappointing U.S. payrolls report.
Yields on 10-year notes 10_YEAR -1.75% , which move inversely to prices, slipped 3 basis points to 2.03%, near their lowest level in a month and following a sharp drop on Friday.
A basis point is one one-hundredth of a percentage point.
Thirty-year-bond yields 30_YEAR -1.21% fell 3 basis points to 3.19%.
Yields on 5-year notes 5_YEAR -1.22% turned back down 1 basis point to 0.89%, also near a one-month low.
U.S. stocks fell Monday, with the S&P 500 Index SPX -1.25% off 1.3% in late morning trading. See story on U.S. stocks.
Several financial markets in Asia, Europe and the U.K. remained closed.
On Friday, a U.S. report showed the economy added far fewer jobs than anticipated in March, raising concerns about the health of the economy’s recovery. Read more on Friday’s bond market.
That added to some expectations that the Federal Reserve may have reason to start a third round of quantitative easing, which could include more purchases of Treasury bonds.
Given economists’ outlook for growth and unemployment, “markets should be pricing in a 20-30% chance of the Fed launching QE3,” said Anshul Pradhan, a bond strategist at Barclays Capital. “The odds would have certainly gone up, given the soft employment report and worsening financial conditions in Europe.”
However, the single report is unlikely to propel the Fed’s policy setting Federal Open Market Committee to ease at its meeting April 24-25, but “the door for further accommodation remains open and the decision point may shift to June as the FOMC continues to monitor incoming data,” Barclays analysts wrote in a note.
New range
Analysts said the move after the payrolls report pushes the trading range for bond yields back down, after only recently saying a big selloff last month would keep the range higher for some time.
Benchmark 10-year yields are likely to trade between 2.14% and 1.92% near term, according to strategists at RBS Securities. Longer-term, that range may extend down to 1.80% — which would put yields back near their record lows set in September.
But potentially limiting the fall in yields, traders are preparing for this week’s trio of government note and bond auctions, starting Tuesday.
The U.S. will sell 3-year notes 3_YEAR -0.67% , 10-year notes and 30-year bonds. See Treasury auction schedule.
Foreign investors — which own close to half of outstanding Treasury debt — have been more willing to buy lately than they usually are at this time of year, said David Ader and Ian Lyngen, bond strategists at CRT Capital Group.
“It seems to us that the foreign contingent — which was a better buyer in these last few weeks before nonfarm payrolls — have a more shall we call it ‘open mind’ when it comes to QE3, not only because their monetary authorities are still trying to accommodate, but perhaps as they sense unease with their domestic economies in Asia and the banking and related peripheral issues in Europe,” they wrote in a research note.
