BLBG:Treasuries Advance for Second Day Before Jobless Report
Treasuries advanced for a second day before a government report that economists said will show initial claims for jobless benefits in the U.S. increased, spurring demand for the safest assets.
Two-year yields fell to the lowest level this week after the Commerce Department said yesterday the U.S. economy unexpectedly shrank in the fourth quarter and the Federal Reserve said it plans to keep buying $85 billion of bonds a month. Policy makers said they may end bond purchases in 2013, according to minutes of the Fed’s December meeting. Treasuries are still headed for their biggest monthly decline in two years, with 10-year yields climbing to a nine-month high yesterday.
“People were gearing themselves toward more of a hawkish Fed,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “What we got yesterday was a reminder that they continue to see downside risks to the economic outlook. They were a little bit more dovish and that’s why the market has bounced up.”
The benchmark 10-year yield fell two basis points, or 0.02 percentage point, to 1.98 percent at 7:04 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.625 percent note due November 2022 rose 5/32, or $1.56 per $1,000 face amount, to 96 29/32.
The two-year yield was at 0.27 percent after reaching 0.26 percent, the lowest since Jan. 25.
Applications for unemployment insurance payments rose by 21,000 to 351,000 last week, according to a Bloomberg News survey before the Labor Department reports the figure today.
Technical Level
Treasuries handed investors a 1.1 percent loss this month as of yesterday, set for the biggest decline since December 2010, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index (MXWD) of shares gained 4.9 percent in the period including reinvested dividends.
The selloff slowed this month as yields surpassed a technical level. The high rate of 2.03 percent yesterday was above the so-called upper Bollinger band level of 1.99 percent.
Bollinger bands gauge volatility by plotting standard deviations above and below a moving average. Analysts use them to determine a probable range for a rate or security. Ten-year yields slid below the Bollinger level today.
The Federal Open Market Committee said in a statement yesterday that growth, while slowed by “transitory factors,” faces “downside risks” even after strains in global financial markets have eased. The expansion will pick up and unemployment will fall in response to “appropriate policy accommodation,” Fed officials said in a statement after a two-day meeting.
Officials Divided
Fed Bank of Kansas City President Esther George voted against the central bank decision, saying it risks increasing inflation expectations. Minutes of the Dec. 11-12 gathering had shown members divided between a mid- or end-of-year finish to bond purchases.
Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., repeated his concern that costs in the economy may quicken, in a Twitter post yesterday.
“Investors should avoid long term bonds,” and “be wary of inflation,” he wrote.
The Fed’s measure of inflation expectations for the period from 2018 to 2023, known as the five-year five-year forward break-even rate, climbed to 2.88 percent. It was as high as 2.89 percent in November, which was the most since August 2011. The average last year was 2.61 percent.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
