BLBG: Treasuries Decline Before Jobs as Aussie Gap Reaches 2009 Low
Treasuries fell, as a two-month rally slows in December, before U.S. data economists said will show employment growth picked up in the world’s biggest economy.
Businesses across the country are hiring workers in industries from software to finance, according to a Federal Reserve survey, adding to speculation employment is strong enough for the central bank to raise interest rates next year. The Fed will increase its benchmark in about 9 1/2 months, based on data compiled by Morgan Stanley.
“Investors are being cautious,” said Hideaki Kuriki, a bond trader in Tokyo at Sumitomo Mitsui Trust Asset Management Co. which manages the equivalent of $40.5 billion. “Treasuries are falling before payrolls. Employment is stable.”
Benchmark 10-year yields rose one basis point to 2.25 percent as of 6:47 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2.25 percent note maturing in November 2024 fell 1/8, or $1.25 per $1,000 face amount, to 100.
Australian government bonds rallied amid speculation the central bank will cut interest rates from a record-low 2.5 percent next year. The extra yield on the nation’s two-year government bonds offer over similar-dated Treasuries shrank to 177 basis points today, the narrowest spread since March 2009.
The yield on Australia’s two-year debt dropped as low as 2.27 percent, a level not seen since August 2013. The five-year yield slid to 2.42 percent, the least since September 2012.
Japan’s 10-year yield slid 1 1/2 basis points to 0.42 percent. A basis point is 0.01 percentage points.
RBA Cut
Deutsche Bank AG, Goldman Sachs Group Inc. and Westpac Banking Corp. predict the RBA will trim its benchmark to 2 percent next year to help bolster growth.
The Bloomberg U.S. Treasury Bond Index fell 0.3 percent this month through yesterday. It gained 1 percent in November and 1.1 percent in October.
“Employment gains were widespread,” the U.S. central bank said this week in its Beige Book survey, which is based on reports gathered on or before Nov. 24 by regional Fed banks.
The U.S. probably added 230,000 jobs in November, versus 214,000 in October, based on a Bloomberg News survey of economists. The unemployment rate held at 5.8 percent, according to the survey.
Average hourly earnings advanced 2.1 percent last month from a year earlier, versus 2 percent in October, based on the responses.
Employment Rally
Treasuries rose after the last employment report on Nov. 7, sending the 10-year yield down nine basis points. There hasn’t been a bigger rally since.
Employers added more than 200,000 workers in October for a ninth consecutive month and the jobless rate dropped to the lowest level in six years, the report showed.
The 2 percent gain in average hourly earnings added to evidence that wage inflation is in check. The figure has averaged 2 percent this year, unable to bounce back from the recession that began in December 2007 and ended in June 2009. It was as high as 3.6 percent in 2008.
A global economic slowdown led by Europe may keep the Fed from raising interest rates, said Will Tseng at Mirae Asset Global Investments Co. in Taipei.
“The global environment is not good,” Tseng said. “If there’s more uncertainty from Europe, then the Fed might postpone the first hike.”
Tseng said he bought Treasuries in November. Mirae Asset manages about $62 billion.
The Fed has kept its benchmark, the target for overnight loans between banks, in a range of zero to 0.25 percent since 2008.
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Netty Ismail in Singapore at nismail3@bloomberg.net
To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Naoto Hosoda, Jonathan Annells
