BLBG: Treasuries Fall as Global Bond Rally Pauses Before Jobs Report
Treasuries fell for a second day, and the new-year rally in sovereign bonds around the world paused, before reports today and tomorrow that economists said will show U.S. labor-market gains.
Government securities are losing their appeal after this month’s surge sent benchmark Treasury yields below 2 percent. Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.25 percent yesterday, climbing back from the record low of 1.244 percent set the day before. Policy makers may “begin normalization at a time when core inflation was near current levels,” according to minutes of the Federal Reserve’s December meeting.
“Ultimately the bond market will follow the Fed and the Fed will be following the data,” said Mark Dowding, co-head of investment-grade bonds and partner at BlueBay Asset Management in London. “We will see higher U.S. yields this year.”
The benchmark 10-year yield rose four basis points, or 0.04 percentage point, to 2.01 percent at 7:35 a.m. New York time, according to Bloomberg Bond Trader data. The 2.25 percent note maturing in November 2024 fell 11/32, or $3.44 per $1,000 face amount, to 102 5/32.
The minutes also repeated Chair Janet Yellen’s predictions that inflation would move up toward the Fed’s target as the labor market strengthens.
Japan’s 10-year yield was little changed at 0.294 percent after declining to a record 0.265 percent yesterday. Australia’s (GACGB10) climbed five basis points to 2.73 percent after sliding yesterday to an all-time low 2.614 percent. The German 10-year rate was little changed at 0.49 percent after falling to a record 0.432 percent yesterday.
Global Rally
U.S. initial claims for jobless insurance fell last week, according to a Bloomberg News survey before today’s report. Employers added 240,000 jobs in December,from 321,000 in November, a separate survey showed before the figure is released tomorrow. Companies added more workers last month than economists forecast, ADP Research Institute said yesterday.
Government bonds around the world began 2015 with a rally as tumbling oil prices signaled inflation will hold in check. Crude oil prices have fallen about 8 percent in January, after plunging 46 percent in 2014.
U.S. debt due in 10 years and longer returned 5.7 percent over the two weeks ended yesterday, the best performer of 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
The advance pushed Treasury 10-year yields to less than the dividend yield on the Standard & Poor’s 500 Index for the first time in a year and a half.
‘Go Lower’
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities narrowed to 1.54 percentage points yesterday, down from last year’s high of 2.31 percent set in January. It’s at 1.59 percentage points today. The gauge tracks expectations for consumer prices over the life of the debt.
“For the first quarter, yields could still go lower,” said Will Tseng at Mirae Asset Global Investments Co. in Taipei. “The market has revised down the inflation outlook.”
Tseng said he bought Treasuries in October and is sticking with the position. Mirae has $62 billion in assets.
The U.S. economy will probably improve enough to lead the Fed to raise interest rates in the middle of 2015, Tseng said, which would be the first increase since 2006.
Most central bank officials said they are unlikely to raise borrowing costs before late April, and a number said they were concerned inflation will remain too low, minutes of their December meeting issued yesterday showed.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Mark McCord
