BLBG: Treasuries Are World’s Worst Performers Before Employment Report
Treasuries fell, extending the world’s biggest government bond losses over the past two months, on speculation employment data today will bolster the case for the Federal Reserve to raise interest rates in 2015.
U.S. notes and bonds due in more than a year dropped 0.2 percent in the period, the only loss among 26 debt markets, data compiled by Bloomberg and the European Federation of Financial Analysts Societies show. The world’s biggest economy is recovering from a first-quarter contraction, leading investors to add to bets for the Fed to increase borrowing costs.
“Next year will be a bright year for the economy, and that will be bad news for bonds,” said Will Tseng, a bond fund manager in Taipei at Mirae Asset Global Investments Co., which had $58.7 billion in assets as of Dec. 31. “The Fed will hike sometime next year.”
The U.S. 10-year yield rose one basis point, or 0.01 percentage point, to 2.57 percent at 7:19 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2.5 percent note due in May 2024 fell 1/8, or $1.25 per $1,000 face amount, to 99 3/8.
The yield may approach 3 percent by Dec. 31, Tseng said, adding that he would consider buying if it does.
Japan’s 10-year yields were unchanged at 0.53 percent, while Australia’s (GACGB10) increased two basis points to 3.53 percent.
The U.S. probably added more than 200,000 jobs for a sixth straight month in July, according to a Bloomberg News survey of economists before the Labor Department issues the monthly employment report.
Average Earnings
Average hourly earnings increased 2.2 percent from a year earlier, based on the responses. While the figure would be the highest level this year, it has yet to recover from the recession that began in December 2007 and ended in June 2009. The measure climbed as high as 3.6 percent in 2008.
Personal income and spending levels probably rose in June, while a measure of annual inflation tracked by the Fed fell to 1.7 percent from 1.8 percent, separate surveys show.
Two manufacturing reports will show expansion at the nation’s factories for July, though one of them will confirm an earlier estimate that growth slowed, based on the projections. A final reading on July consumer confidence will ratify the initial estimate that sentiment dropped, according to economists.
GDP Quickens
U.S. gross domestic product grew at a 4 percent annual rate in the second quarter, after shrinking 2.1 percent from January through March, Commerce Department figures showed this week.
Traders see about 80 percent odds the central bank will raise the target for its benchmark to at least 0.5 percent by September 2015, based on futures contracts. The figure was about 70 percent on July 1. The chance of an increase by the end of this year is about 4 percent.
From North America to Asia and Europe, bonds of all types delivered their smallest gains last month since March, according to the Bank of America Merrill Lynch Global Broad Market Index, which tracks $43 trillion of securities.
Returns of 0.2 percent added little to the 4.2 percent rally in the first half of the year.
The index has an effective yield of 1.76 percent, dropping from 2.27 percent in September.
“There’s not a lot of value in bonds,” said Ewen Cameron Watt, the chief investment strategist for BlackRock Investment Institute. “In the fourth quarter of this year, with modest wage increases, we’re going to see a modest inflation risk,” he told reporters yesterday in Sydney.
The institute is part of BlackRock Inc., the world’s largest money manager with $4.32 trillion in assets at the end of last year.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Pavel Alpeyev, Nicholas Reynolds
