Treasuries rose, pushing 10-year note yields toward a record low, as Goldman Sachs Group Inc. and other bond-trading firms said the Federal Reserve will add to its debt purchases to support the economy.
U.S. government debt advanced for a third day after Fed Bank of Chicago President Charles Evans said the central bank should move more forcefully to cut joblessness. Employers added fewer workers to payrolls than economists forecast in June, data showed last week, while the unemployment rate stayed at 8.2 percent. The U.S. plans to sell $66 billion of notes and bonds this week in three auctions starting tomorrow.
“The weak payrolls data added to expectations that the Fed might decide to add more stimulus and that’s underlying the move higher in Treasuries,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “We might see some small declines in Treasuries before this week’s auctions, but if yields go higher investors see that as a buying opportunity because of the global economic outlook, where there are downside risks.”
Benchmark 10-year yields declined three basis points to 1.52 percent at 7:24 a.m. New York time, according to Bloomberg Bond Trader data. It touched 1.51 percent, the lowest since June 5. The 1.75 percent security due May 2022 rose 8/32, or $2.50 per $1,000 face amount, to 102 2/32.
The 10-year rate dropped 10 basis points, or 0.1 percentage point, last week. The all-time low yield was 1.44 percent set on June 1.
Fed Pledge
Treasuries extended their gains as Spanish and Italian debt fell amid concern euro-area finance ministers meeting in Brussels will fail to agree on sufficient crisis-fighting measures to stem the region’s financial woes.
Spain’s 10-year bond yields climbed 11 basis points to 7.07 percent, while rates on similar-maturity Italian securities advanced nine basis points to 6.12 percent. The euro slid to as low as $1.2251, the weakest level since July 2010.
“Everybody wants to buy U.S. Treasuries” as a haven, said Kim Youngsung, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $98.8 billion in assets. “The price will go higher.”
After breaking below the 1.55 percent level, Treasury 10- year yields are poised to “retest” their record low, David Sneddon, head of technical-analysis research at Credit Suisse Group AG in London, wrote in a note to investors. Should yields fall below the 1.44 percent resistance level, they will decline to 1.41 percent, the strategists wrote.
Resistance refers to an area where sell orders may be clustered, and support to an area where buy orders may be grouped.
The U.S. is scheduled to sell $32 billion of three-year notes tomorrow, $21 billion of 10-year securities the next day and $13 billion of 30-year bonds on July 12.
The government last week reported an 80,000 June jobs gain that fell short of the 100,000 increase projected by economists in a Bloomberg News survey.
Zero Rate
Goldman Sachs and Bank of America Corp. say the Fed will probably extend its pledge to keep its benchmark interest rate at almost zero until the middle of 2015.
The central bank, which has said it will hold the rate low through at least late 2014, will amend its so-called forward guidance before deciding on a new round of bond purchases, according to the companies. Goldman Sachs and Bank of America are two of the 21 primary dealers that trade directly with the central bank.
“The ‘late 2014’ formulation has now ‘aged’ by six months since it was first adopted, but the economy still looks no better,” Jan Hatzius, the chief economist at Goldman Sachs in New York, wrote in a report yesterday. The central bank may announce the change as soon as its next policy meeting on July 31 to Aug. 1, Hatzius wrote.
The policy-setting Federal Open Market Committee will probably implement a new round of asset purchases when Operation Twist ends, according to Hatzius.
Operation Twist
The Fed bought $2.3 trillion of securities in two rounds of so-called quantitative easing, known as QE1 and QE2, from 2008 to 2011 to support the economy. In September it embarked on a plan to replace $400 billion of short-maturity Treasuries in its portfolio with longer-term debt to cap borrowing costs. It expanded the effort, known as Operation Twist, on June 20 by $267 billion and extended it until year-end.
“Failure to act aggressively now will lower the capacity of the economy for many years to come,” Evans said in the text of remarks today in Bangkok. “I support using our balance sheet to provide additional accommodation.”
Fed Bank of Boston President Eric Rosengren, speaking at the same conference in Bangkok, said a struggling U.S. labor market threatens to slow household spending. The unemployment rate has been more than 8 percent since February 2009. Evans and Rosengren do not vote on monetary policy this year.
Wall Street’s primary dealers are increasingly choosing to hoard their U.S. bonds rather than sell them to the Fed.
Dealers offered an average of $7.2 billion in Treasuries a day to the central bank in June, down 40.5 percent from a high of $12.1 billion in October, data compiled by Bloomberg show.
While the amount of marketable U.S. government debt outstanding has risen to more than $10.5 trillion, Treasuries are proving scarce in a world where five nations in Europe have sought bailouts, the U.S. economy is slowing again and China is weakening. That means interest rates on everything from mortgages to corporate bonds should remain at about record lows.
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
