BLBG:Treasuries Rise As Data May Show Struggle To Add Jobs
Treasuries rose, led by longer maturities, before reports that economists said will show the U.S. is struggling to add jobs, boosting the case for more Federal Reserve stimulus.
Ten-year yields dropped to within 14 basis points of a record after Spain’s 10-year borrowing costs increased at an auction, adding to signs the euro-area debt crisis is worsening. The European Central Bank will today cut its benchmark interest rate below 1 percent for the first time to boost growth, and the Bank of England will expand its bond-purchase program, economists said before the decisions. The U.S. is scheduled to announce the sizes of next week’s auctions.
“The jobs data has been softening up for the past couple of months and if it continues to get worse we will get more stimulus,” said Charles Diebel, head of market strategy at Lloyds Banking Group Plc in London. “That’s supportive for Treasuries. With the European factors and the global-growth picture as it is, yields will stay low.”
The benchmark 10-year yield fell three basis points, or 0.03 percentage point, to 1.6 percent at 11:11 a.m. in London, according to Bloomberg Bond Trader prices. The yield dropped as low as 1.58 percent, approaching the record 1.44 percent set June 1. The 1.75 percent note due in May 2022 rose 10/32, or $3.13 per $1,000 face amount, to 101 3/8.
Thirty-year bond yields declined three basis points to 2.71 percent. Trading of Treasuries resumed today after being shut worldwide yesterday for the U.S. July 4 holiday.
Job Reports
ADP Employer Services will say today U.S. job growth slowed to 100,000 in June from 133,000 in May, according to a Bloomberg News survey. Reports tomorrow will show the U.S. added 90,000 workers in June and the jobless rate held at 8.2 percent, separate Bloomberg surveys showed before the Labor Department releases the data. That would be the third month the U.S. created fewer than 100,000 jobs.
Ten-year yields dropped to an all-time low following the previous non-farm payrolls report on June 1, when the Labor Department said employment rose by 69,000, the least in a year.
“There’s a lot of support for Treasuries,” said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “Jobs growth is sluggish. The pace of recovery seems to be slowing.” BNP is one of the 21 primary dealers that trade directly with the U.S. central bank.
Operation Twist
The Fed on June 20 expanded so-called Operation Twist, its program to replace $400 billion of short-maturity Treasuries in its portfolio with longer-term debt to hold down borrowing costs, by $267 billion and extended it until year-end.
The ECB will cuts its key rate by a quarter percentage point today to a record low of 0.75 percent and reduce its deposit rate to zero, according to a Bloomberg survey. The Bank of England will raise its target for bond purchases by 50 billion pounds ($77.9 billion) to 375 billion pounds, another survey showed.
The decisions would push JPMorgan Chase & Co.’s average interest rate for developed economies to a crisis-era low of about 0.5 percent and add to the balance sheets of major central banks, which have already swelled 40 percent in five years of global financial turmoil.
Declining costs in the U.S. economy mean 10-year Treasury rates are approaching the rate of inflation after 13 months of so-called negative real yields.
Consumer Prices
Consumer prices rose at an annual rate of 1.7 percent in May, compared with 3.9 percent in September. The 10-year real yield was negative 11 basis points after being as much as negative 2.11 percentage points in October.
“We are in a deflationary environment,” said Hans Goetti, Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, which manages the equivalent of $1.46 billion. “If inflation rates come down, I would expect the Treasury bond yield to come down as well.”
Benchmark 10-year Treasury yields may fall to 1.3 percent before year-end, he said.
The Fed plans to buy as much as $5.5 billion of U.S. government securities due from August 2020 to May 2022 today as part of its effort to support the economy by reducing long-term interest rates, according to the Fed Bank of New York’s website.
Spain auctioned 3 billion euros ($3.75 billion) of debt, meeting its maximum target. It sold 10-year bonds at an average yield of 6.43 percent, compared with 6.044 percent when the securities were last sold on June 7.
A survey of purchasing managers released yesterday showed German service industries unexpectedly shrank last month, adding to evidence the euro-region economy is stalling and spurring demand for the safest assets.
The U.S. will sell $32 billion of three-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds over three days starting on July 10, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
