BLBG:Treasuries Inflation Gauge Falls to One-Month Low
Treasury 10-year yields dropped to the lowest level in two months as economists said a government report this week will show the U.S. added jobs at a slower rate last month and after factory data missed estimates yesterday.
The decline in yields pushed them below the 100-day moving average for the first time since December. The Federal Reserve’s gauge of inflation expectations, the five-year forward break- even rate, fell to the lowest level in a month. Fed purchases of $85 billion each month in Treasury and mortgage debt, aiming to spur economic growth by putting downward pressure on borrowing costs, have yet to send costs in the economy higher.
“This is a crucial area at about the 100-day moving average on 10-year yields,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “That’s what so far has stopped the rally. Inflation has taken a backseat because people aren’t as concerned. If inflation does start ticking up it’s not going to stop the Fed from keeping their foot firmly on the gas pedal of accommodative policy.”
The U.S. 10-year yield was little changed at 1.84 percent at 9:56 a.m. London time, according to Bloomberg Bond Trader data. The price of the 2 percent note due in February 2023 was 101 15/32. The yield fell to 1.82 percent, the lowest since Jan. 24, and below the 100-day moving average at 1.83 percent.
U.S. employers hired 199,000 workers in March, after a gain of 236,000 in February, according to the median forecast of economists surveyed by Bloomberg News before the Labor Department report on April 5. Average hourly earnings increased 2 percent from a year ago, dropping from 2.1 percent in February, the data are forecast to show.
Manufacturing Data
Treasuries rose yesterday after a measure of manufacturing was weaker than economists forecast. The Institute for Supply Management’s factory index fell to 51.3 in March from 54.2 the month before, boosting demand for the safest assets.
“The question is whether the data is starting to turn,” Bank of Montreal’s Collins said. “We saw weaker ISM yesterday. Payrolls is obviously a highlight of the week.”
The central bank’s measure of traders’ outlook for inflation from 2018 to 2023, known as the five-year forward break-even rate, dropped to 2.71 percent as of the most recent figures on March 28, the lowest since Feb. 25.
“Inflation is stable,” said Kei Katayama, who buys non- yen debt in Tokyo for Daiwa SB Investments Ltd., which manages the equivalent of $53.4 billion. “People feel safe in Treasuries because of the huge support from the Fed.”
Yields may rise as the economy expands, Katayama said. Ten- year rates will climb to 2.31 percent by year-end, according to a Bloomberg survey of economists with the most recent projections given the heaviest weightings.
U.S. government securities were little changed this year as of yesterday, according to Bank of America Merrill Lynch indexes. German bunds returned 0.4 percent, while the MSCI All- Country World Index (MXWD) of stocks gained 6.2 percent including reinvested dividends.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
