BLBG:Treasury Yields Fall Toward 1-Month Low Before Jobs Data
The yield on 10-year Treasuries fell toward a one-month low before reports this week that economists say will signal U.S. employment is struggling to pick up.
U.S. bonds halted a decline ahead of government figures projected to show payrolls grew at a slower pace, adding to the case for a third round of quantitative easing by the Federal Reserve. Demand for the relative safety of Treasuries was limited before European officials gather today and tomorrow to discuss measures to stem the region’s debt woes.
“If the payroll number undershoots the market consensus, expectations of another round of quantitative easing will rise, and Treasury yields will fall further,” said Hitoshi Asaoka, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest lender by market value. “Even if it doesn’t, expectations of additional easing are more likely to remain.”
The benchmark 10-year yield declined one basis point to 1.56 percent as of 6:39 a.m. in London. It retreated to 1.54 percent yesterday, the lowest since Aug. 6. The 1.625 percent note due in August 2022 added 1/8, or $1.25 cents per $1,000 face amount, to 100 19/32.
The MSCI Asia Pacific Index (MXAP) of shares slid 1.2 percent, boosting the relative allure of government securities. Japan’s five-year rate slid half a basis point to 0.195 percent, the least since Aug. 15.
U.S. payrolls probably increased by 125,000 last month, less than the 163,000 jobs added in July, according to the median estimate of economists surveyed by Bloomberg News ahead of the Labor Department report due Sept. 7. ADP Employer Services is forecast to say tomorrow that employment by companies increased by 143,000 in August, the smallest gain since May, based on another poll.
Fed Policy
Speaking on Aug. 31 in Jackson Hole, Wyoming, Fed Chairman Ben S. Bernanke said the costs of “nontraditional policies” appear manageable when considered carefully. That implies Fed policy makers “should not rule out the further use of such policies if economic conditions warrant,” he said.
The U.S. central bank bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of quantitative easing, or QE. The policy-setting Federal Open Market Committee will next meet on Sept. 12-13.
“Ironically, economic releases that paint a rosy picture about the U.S. economy are bad news, because they may compel the Fed to delay QE3,” Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris, wrote in a research note dated today. “At this juncture, the market has convinced itself that QE3 is coming and has been piling into ‘risk-on’ trades.”
ECB Meeting
U.S. government bonds have returned 2.5 percent this year, Bank of America Merrill Lynch index data show. That compares with a 13 percent gain in the Standard & Poor’s 500 Index (SPX) of U.S. shares, including reinvested dividends.
European Central Bank President Mario Draghi said on Sept. 3 in Brussels that the bank’s primary mandate compels it to intervene in bond markets to control interest rates, according to a recording obtained by Bloomberg of comments to lawmakers in a closed-door session at the European Parliament. Such purchases wouldn’t amount to financing deficits as long as they were confined to buying shorter-dated debt, he said.
His comments fanned speculation the ECB will decide to buy government securities to lower borrowing costs and curb the euro region’s debt crisis. Spain’s three-year bond yields fell to a four-month low yesterday, while those in Italy slid to the least since March 28.
“Risk appetite could pick up if the ECB can deliver decisive measures,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, a primary dealer that’s obliged to bid at U.S. debt auctions. “There’s some kind of optimism for the ECB.”
The ECB will probably reduce its benchmark interest rate tomorrow to 0.5 percent from 0.75 percent, according to the median estimate in a Bloomberg survey of economists. European Union President Herman Van Rompuy is due to meet French President Francois Hollande today.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
