BLBG:Treasuries Stay Lower Ahead of Employment Report
Treasuries stayed lower before data economists said will show the U.S. added more than 100,000 jobs for a fourth month, the Labor Department’s last employment report before the Nov. 6 presidential election.
U.S. government debt handed investors a 0.6 percent loss in the three months ended yesterday, according to Bank of America Merrill Lynch indexes, as demand for the safety of debt waned. The jobless rate, calculated differently from the number of positions gained or lost, probably rose to 7.9 percent from 7.8 percent, based on Bloomberg News surveys of economists. Two reports yesterday showed improvement in the U.S. labor market.
“Yields will go up a little,” said Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $70.9 billion in assets. “Jobs are increasing.”
U.S. 10-year notes yielded 1.73 percent at 7:02 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent note due in August 2022 was 99 1/32. The yield rose three basis points, or 0.03 percentage point, yesterday.
It will be at 2 percent by Dec. 31, Suzuki said. A Bloomberg survey of banks and securities companies projects 1.75 percent at year-end and 2.06 percent by June 30, with the most recent projections given the heaviest weightings.
Japan’s 10-year rate held at 0.775 percent today. Bonds in both Japan and the U.S. were little changed this week.
U.S. initial applications for jobless benefits declined 9,000 to 363,000 in the week ended Oct. 27, the Labor Department reported yesterday.
Fed Stimulus
Companies added 158,000 workers in October, according to a private report. The increase was higher than forecast, data from the Roseland, New Jersey-based ADP Research Institute showed. It was the first ADP report derived using a larger sample and new methodology.
Federal Reserve Bank of Boston President Eric Rosengren said the central bank should buy mortgage bonds until the jobless rate falls to 7.25 percent and hold the target interest rate near zero until hitting 6.5 percent unemployment.
“As long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases,” Rosengren said yesterday in a speech in Wellesley, Massachusetts.
The Federal Open Market Committee on Oct. 24 said it will continue buying $40 billion in mortgage-backed securities each month, aiming to reduce unemployment. It reiterated that it will probably keep its benchmark interest rate near zero at least through the middle of 2015.
Selling Operation
The central bank is also swapping shorter-term Treasuries in its holdings with those due in 6 to 30 years. It plans to sell as much as $8 billion of debt maturing from February 2013 to April 2014 today as part of the program, according to Fed Bank of New York’s website.
Kevin Yang, the head of bond investment in Taipei at Hontai Life Insurance Co., which has $6 billion in fixed-income assets, said he plans to trim his Treasury holdings before the employment report. While the economy is improving, yields will probably hold below 2 percent, he said.
“At 2 percent, a lot of buyers will come in,” Yang said. “The Fed will maintain low interest rates.”
Pacific Investment Management Co., which runs the world’s biggest mutual fund, favors inflation protection in the U.S., betting stimulus efforts around the world will stoke faster price increases.
‘Good Assets’
“Central banks have implemented increasingly far-reaching policy measures and they are more willing to take inflation risk as a trade-off for growth and employment,” said Michael Althof, a senior portfolio manager in Munich. “Index-linked bonds are good assets to have, as longer-term we think the pressure for higher inflation is there.”
U.S. consumer prices increased 2 percent in September from 12 months before, based on the latest data from the Labor Department, meaning 10-year notes have a negative real yield.
The difference between rates on the notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for costs in the economy over the life of the debt, was 2.52 percentage points. The average over the past decade is 2.17 percentage points.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
