Bloomberg News

Treasuries Fall as U.S. Unemployment Rate Unexpectedly Drops

November 07, 2011

Nov. 4 (Bloomberg) -- Treasuries fell after the U.S. government’s payrolls report showed the unemployment rate for world’s largest economy unexpectedly declined to a six-month low.

U.S. 10-year note yields increased as upward revisions to recent months’ job gains reduced concern America may be slipping into another recession. European leaders meeting in the French resort of Cannes sought a coordinated approach to supporting banks crippled by the sovereign-debt crisis.

“It is a comforting number and is taking some of the steam out of Treasuries,” said Carl Lantz, head of interest-rate strategy in New York at Credit Suisse AG, one of 21 primary dealers that trade with the Federal Reserve. “The economy has weathered the economic shocks of the fall when the fear was that a lack of confidence would have restrained hiring. But the situation is turning out to be not as bad as feared.”

Yields on 10-year notes increased three basis points, or 0.03 percentage point, to 2.11 percent at 8:44 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities maturing in August 2021 fell 9/32, or $2.81 per $1,000 face amount, to 100 5/32.

Thirty-year bond yields rose four basis points to 3.16 percent.

U.S. employment climbed in October at the slowest pace in four months, illustrating the “frustratingly slow” progress cited by Federal Reserve Chairman Ben S. Bernanke this week.

Jobs Data

The 80,000 increase in payrolls was less than forecast and followed gains in the prior two months that were revised up by 102,000, Labor Department figures showed today in Washington. The unemployment rate fell to 9 percent from 9.1 percent even as the labor force expanded.

“There was a strong upward revision to last month,” said Thomas Simons, a government debt economist in New York at Jefferies Group Inc., one of 21 primary dealers that trades with the Federal Reserve. The “unemployment decline looks healthy. It’s pretty positive.”

G-20 leaders failed to agree on International Monetary Fund resources, German Chancellor Angela Merkel told reprters today.

Billionaire investor George Soros said Greece faces the danger of a disorderly default, raising the specter of a run on lenders in other countries. Any Greek debt reduction “must be done in an orderly manner” and authorities need to ensure that Greek banks are “kept alive” and deposits are safe, Soros said in a speech in Budapest yesterday.

Soros Warning

“There’s a real danger of a disorderly default,” Soros said. Without support for the lenders, “you’re liable to have a run on the banks in other countries as well. That’s the danger of a meltdown.”

U.S. economic data have been better than forecast, though the improvement is slow, he said. The Citigroup Economic Surprise Index, which shows whether U.S. data beat or fell short of forecasts, has climbed to 13.6 from this year’s low of negative 117.2 in June.

The Fed announced in September it would replace $400 billion of short-maturity U.S. debt with longer-term securities to contain borrowing costs. It plans to purchase as much as $5 billion of Treasuries due from 2017 to 2019 today under the program, according its website.

Treasuries slid yesterday as concern eased that Greece would reject its financial bailout package and after the European Central Bank unexpectedly cut interest rates.

The ECB acted at President Mario Draghi’s first meeting in charge, where he said Europe is heading toward a “mild recession.” The central bank reduced its benchmark by 25 basis points to 1.25 percent.

The U.S. plans to auction $32 billion of three-year notes on Nov. 8, $24 billion of 10-year debt on the following day and $16 billion of 30-year bonds on Nov. 10.

The 10-year yield will advance to 2.21 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.

--With assistance from Daniel Kruger in New York. Editors: Paul Cox, Greg Storey

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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