BLBG:Treasuries Slide Before U.S. Payrolls Report as Greek Bond Deadline Looms
Treasuries declined for a second consecutive day before data that analysts predict will show U.S. payrolls rose last month, bolstering optimism the economic recovery is gathering momentum.
U.S. debt has lost 0.3 percent this year, while an index of investment-grade and high-yield securities rallied 3.3 percent, according to Bank of America Merrill Lynch. Employers added more than 200,000 jobs for a third month in February, according to the median forecast of 89 economists surveyed by Bloomberg before tomorrow’s report. Treasury demand was also restrained amid speculation a Greek debt swap will be successful.
“The jobs report is key,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Bank Corporate Markets in London. “The market has been telling itself over the past two months that the U.S. is not going to have a double-dip recession. If you look at the 10-year yield it seems that is has been forming a new range, a higher, much narrower one.”
The 10-year note yield was two basis points higher at 2 percent at 9:45 a.m. London time, according to Bloomberg Bond Trader prices. The 2 percent security due in February 2022 fell 5/32, or $1.56 per $1,000 face amount, to 100 1/32. The yield rose three basis points, or 0.03 percentage point, yesterday.
It will increase to 2.25 percent within three-to-six months, Mercuri said. The record low was 1.67 percent, reached on Sept. 23.
Jobs Reports
Treasuries (YCGT0025) declined yesterday after a report showed U.S. companies added jobs last month and as Greece garnered support for a planned debt exchange.
U.S. companies increased the number of workers by 216,000 in February, versus 173,000 the previous month, according to ADP Employer Services. The government’s weekly figures today on initial claims for unemployment benefits will show they were unchanged at 351,000, a Bloomberg survey of economists showed.
Investors with about 60 percent of the Greek bonds eligible for the nation’s debt swap have indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history.
Investors already agreeing include Greece’s largest banks, most of the country’s pension funds, and more than 30 European banks and insurers such as BNP Paribas SA, Commerzbank AG (CBK) and Assicurazioni Generali SpA. (G)
The U.S. is set to announce today the sizes of three auctions of coupon-bearing securities scheduled for next week. The government will sell $32 billion of three-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey, that specializes in government finance.
Bond Auctions
The auctions will take place over three days starting March 12. There will be $30 billion of Treasuries that are maturing and available for reinvestment, while the sales will raise $36 billion of new money, according to Wrightson. The U.S. sells this combination of securities every month.
An inflation gauge tracked by the Federal Reserve fell the most this year, supporting Chairman Ben S. Bernanke’s view that costs will stay in check as the economy grows.
The five-year, five-year forward breakeven rate, which projects annualized price increases over a 60-month period starting in 2017, dropped nine basis points to 2.37 percent. The decline on March 5, the most recent figure available, was the biggest since Dec. 28. The rate is holding below its 10-year average of 2.76 percent.
Inflation Goal
“I don’t feel there’s much of a concern about inflation,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “It’s good for long bonds.”
Fed policy makers on Jan. 25 set a long-term inflation goal of 2 percent. They also forecast that price increases will fall short of the target this year.
The Fed plans to buy as much as $5.25 billion of U.S. debt due from May 2020 to February 2022 today, according to the Fed Bank of New York website. The central bank is in the process of swapping $400 billion of shorter-maturity Treasuries in its holdings with longer-term bonds to cap borrowing costs.
Ten-year rates have been within 21 basis points of 2 percent since the start of November, after the central bank announced the plan on Sept. 21.
Policy makers said in January they intend to keep the benchmark interest rate at almost zero until at least late 2014.
‘Upper Bound’
Demand for highly rated bonds combined with central bank efforts to support the economy will cap yields, according to Fidelity Investments, a Boston-based fund management company that oversees $1.52 trillion.
“There is an upper bound, given the safe-haven status of U.S. Treasuries and remarks by the Federal Reserve,” Chris Sullivan, the head of fixed-income institutional investments, wrote on the company’s website yesterday. “Treasuries will continue to play an important role” for investors, he wrote.
The U.S. carries the top debt ranking from Moody’s Investors Service and Fitch Ratings. Standard & Poor’s assigns its second-highest grade.
A survey of economists by Bloomberg shows they expect Treasury yields to rise this year. The 10-year rate will advance to 2.53 percent by Dec. 31, based on the responses, with the most recent forecasts given the heaviest weightings.
To contact the reporters 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: Daniel Tilles at dtilles@bloomberg.net.
