BLBG:Treasuries Show Inflation Expectations at Three-Month Low
Treasury yields show traders’ expectations for inflation dropped to a three-month low after worse-than-expected data on U.S. jobs led some analysts to cut their forecasts for the monthly employment report tomorrow.
The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities slid to 2.48 percentage points, the lowest since Jan. 4 based on closing prices. The Bank of Japan (8301) doubled monthly bond purchases in a bid to encourage inflation. The Federal Open Market Committee said last month it would keep buying bonds as so long as unemployment remained above 6.5 percent and the outlook for inflation was less than 2.5 percent.
“Bond yields are unlikely to rise significantly in the near term until inflation and interest-rate policy change,” said Michael Quach, a global strategist in London at Smith & Williamson Investment Management, which oversees about $20 billion. “We’re some way off the 6.5 percent so the interest rate is going to remain low for the next couple of years and that provides an anchor for bond yields.”
The U.S. 10-year yield was little changed at 1.82 percent at 10:20 a.m. London time, according to Bloomberg Bond Trader prices, within three basis points, or 0.03 percentage point, of the least since Jan. 2. The 2 percent note maturing in February 2023 traded at 101 21/32.
The 10-year Treasury yield closed below its 100-day moving average for the first time since Dec. 11 yesterday after ADP Research Institute said that U.S. companies added 158,000 workers last month, less than the median estimate of a 200,000 in a Bloomberg survey.
‘Safe Haven’
“Treasuries are still a safe haven,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 21 primary dealers that underwrite the U.S. debt. “U.S. economic growth is continuing but the recent weakening in the numbers may suggest that growth is getting slower.”
For tomorrow’s employment data from the Labor Department, which measures March payrolls at both private employers and government agencies, BNP lowered its forecast to 160,000 from 190,000, Fujiki said.
Economists at Deutsche Bank Securities LLC and at Credit Suisse Group AG reduced their estimates to 160,000 from 200,000. The median projection in a Bloomberg survey of economists is for a gain of 195,000.
The weekly government report on initial claims for jobless insurance today will show applications declined to 353,000 from 357,000, based on responses from economists.
BOJ Buying
The Federal Reserve and the BOJ are both buying government bonds to spur growth by putting downward pressure on borrowing costs. The U.S. central bank purchases $85 billion of Treasury and mortgage debt a month.
With Haruhiko Kuroda presiding over his first meeting since becoming BOJ governor, the board streamlined its asset-purchase programs and said it will buy 7 trillion yen ($73 billion) of bonds a month.
The BOJ also said it will target Japan’s monetary base instead of the rate banks charge each other on overnight loans.
Japan’s 10-year bond yield fell as much as 12.5 basis points to a record 0.425 percent.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said BOJ policies encourage Japanese investors to buy U.S. debt.
Buying Incentive
BOJ policies will set “money in motion” and give Japanese individual investors an incentive to buy Treasuries, Pimco’s Gross wrote on Twitter. Gross, who is based in Newport Beach, California, oversees the $289 billion Total Return Fund. (PTTRX)
European Central Bank officials gather today for a policy meeting that economists said will leave interest rates at a record low. The Bank of England is also set to announce its policy decision.
Treasuries were little changed this year as of yesterday, according to Bank of America Merrill Lynch indexes. TIPS have fallen 0.3 percent, the data show, indicating waning demand for protection against inflation. Japanese government bonds returned 2.3 percent, according to the indexes.
To contact the reporter 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: Paul Dobson at pdobson2@bloomberg.net
