More weak U.S. data fuels interest in Treasury bonds
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices added to gains on Wednesday, pushing 10-year yields down to a three-month low, after ADP said U.S. private employers added fewer jobs in April than many analysts expected.
Yields on 10-year notes 10_YEAR -1.59% , which move inversely to prices, fell 3 basis points to 1.91% from 1.93% before the data. A basis point is one one-hundredth of a percentage point.
The benchmark security’s yield level is near its lowest since early February.
Thirty-year-bond yields 30_YEAR -1.24% decreased 4 basis points to 3.11%.
Yields on 5-year notes 5_YEAR -1.68% fell 2 basis points to 0.81%.
Yields are back to multi-month lows as investors worry about the outlook after the Federal Reserve’s bond-purchase program ends, U.S. fiscal and tax policy remain undecided and Europe’s sovereign debt problem and recession stay in the spotlight.
“The second half of the year is going to be more difficult that the first half as stimulus wears off, we’re looking at potential tax increases and a weakening global economy, particularly in Europe,” said Mark MacQueen, co-founder of Sage Advisory Services, which oversees $9.5 billion in assets.
He said 10-year yields may fall as low as 1.75%, but that’s the bottom of a range that extends up to 2.50%.
Private-sector employment increased 119,000 in April, down from an average employment increase of about 200,000 per month in the first quarter of the year, according to ADP. See story on ADP.
The ADP data come two days ahead of the Labor Department’s nonfarm-payrolls report for April, which economists polled by MarketWatch expect to show total employment (including government jobs) rose 163,000 in April.
“Today’s miss on the ADP number confirms a broader slowdown in activity,” said Andrew Wilkinson, chief economic strategist at Miller Tabak.
The Federal Reserve’s professed concern that the recovery will remain slow “requires the Fed to keep its shoulder to the wheel and maintain downwards pressure on yields,” Wilkinson said.
Bonds were up before the U.S. report after weak manufacturing and employment data in Europe raised fears of a deepening recession in the region and increased the appeal of relatively safe assets like U.S. Treasury and German-government debt.
Potentially limiting gains, traders are beginning to position themselves for next week’s trio of auctions, which is the government’s quarterly refunding of the debt.
The U.S. said it will sell $32 billion in 3-year notes 3_YEAR -1.52% , $24 billion in 10-year notes and $16 billion in 30-year bonds next week.
Behind the rally
In the last couple of weeks, bond yields have fallen back to multi-month lows as economic data in the U.S. disappoints, and indicates growth will continue to be sluggish.
Also, investors are worried about Europe’s political ability to stick with budget cuts in key countries needed to get their debt under control, as protests grow leaders lose their support.
As for Europe’s attempts at austerity,” I’m not sure they’re going to be successful,” said Sage’s MacQueen. “In the long run, it could be good, but in the short run, it’s going to be hard.”
Deborah Levine is a MarketWatch reporter, based in New York.
