Bloomberg News

Treasuries Drop Before Forecast Gains in November Jobs Report

December 01, 2011

Dec. 1 (Bloomberg) -- Treasury 10-year notes fell for a fifth day before a report that is forecast to show the U.S. economy in added the most jobs last month since April, reducing pressure on the Federal Reserve at add economic stimulus.

U.S. 30-year yields reached the highest level in two weeks as the nation’s manufacturing increased at the fastest pace in five months in November. Bond yields fell in France and Italy, and the International Monetary Fund said it may receive more funding to combat Europe’s debt crisis, damping demand for the safest assets.

“Data in the U.S. has been beating expectations,” said Christopher Sullivan, who oversees $1.9 billion as chief investment officer at United Nations Federal Credit Union in New York. “We’re tracking sub-trend growth, but growth nonetheless.”

The benchmark 10-year yield rose two basis points, or 0.02 percentage point, to 2.09 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent note due November 2021 dropped 5/32, or $1.56 per $1,000 face amount, to 99 7/32. The yield reached 2.14 percent, the highest since Nov. 14.

Thirty-year yields climbed four basis points to 3.09 percent, after reaching 3.15 percent, the most since Nov. 14. The two-year yield was little changed at 0.25 percent.

Debt Returns

Treasuries are up 8.8 percent in 2011, set for the best annual return since a 14 percent gain in 2008, Bank of America Merrill Lynch index data show. Investors bought the U.S. securities as a haven as Europe’s debt crisis threatened to infect the region’s larger economies.

The U.S. 10-year yield has traded in a 28-basis-point range since Oct. 31, with a high of 2.15 percent and a low of 1.87 percent.

Treasuries fell yesterday after the Fed said in a statement that the premium banks pay to borrow dollars overnight from central banks will decline by half a percentage point to 50 basis points. The Fed coordinated the move with the European Central Bank and the central banks of Canada, Switzerland, Japan and the U.K.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 1.22 percentage points below the euro interbank offered rate yesterday after reaching negative 1.63 percentage points, the most expensive level since credit markets froze in October 2008.

Stress Measures

“It’s another band-aid,” said Brett Rose, an interest- rate strategist in New York at Citigroup Global Markets, one of 21 primary dealers that trade with the Fed. “It seems to be working for now.”

The two-year swap spread, the difference between two-year swap rates and comparable maturity Treasury yields, narrowed to as low as 39 basis points yesterday, the least since Nov. 10. It widened today by 1.5 basis points to 43 basis points.

The TED spread, which measures the difference between three-month Treasury bill yields and the London interbank offered rate, rose to 53 basis points, the most since June 2009, indicating rising demand for dollar loans.

German Chancellor Angela Merkel reiterated her opposition to joint euro-area bonds today, Economy Minister Philipp Roesler said in a speech in Berlin today. ECB President Mario Draghi, in an address to the European Parliament in Brussels today, said the bank’s bond-purchase program “can only be limited” and that “a new fiscal compact” in Europe will be a better way to stop the debt crisis.

Central Banking

Christine Lagarde, head of the International Monetary Fund, said Group of 20 nations are prepared to boost the fund’s resources as the European debt crisis threatens the global recovery. “If circumstances require, the G-20 will commit the resources that are necessary for the IMF to play its systemic role,” she said during a joint press conference with Brazilian Finance Minister Guido Mantega in Brasilia today.

Spain sold 3.75 billion euros ($5.1 billion) of securities, the Bank of Spain said, meeting the Treasury’s maximum target. While Spain paid the most since at least 2005 to borrow for five years, investors ordered more than twice the amount of securities on offer today.

The premium France pays to borrow for 10 years relative to Germany has more than halved since surging to a two-decade high of more than 200 basis points last month. Italy’s 10-year government debt yield fell to 6.81 percent, dropping below 7 percent on a closing basis for the first time since Nov. 23.

Jobs Data

The Institute for Supply Management’s factory index increased to 52.7 last month from 50.8 in October, the Tempe, Arizona-based group’s data showed today. Readings above 50 indicate expansion, and economists surveyed by Bloomberg News projected a gain to 51.8. Orders and production grew at the fastest pace since April.

More Americans than forecast filed applications for unemployment benefits during the holiday-shortened week, signaling limited recovery in the labor market.

Jobless claims climbed by 6,000 to 402,000 in the week ended Nov. 26 that included the Thanksgiving holiday, Labor Department figures showed today in Washington. The median forecast of 43 economists in a Bloomberg News survey called for a drop to 390,000.

U.S. payrolls gained by 125,000 during November, compared with an increase of 80,000 in October, according to the median forecast in a Bloomberg News survey of 90 economists. Companies added more workers to payrolls than economists predicted last month, data from New Jersey-based ADP Employer Services showed yesterday.

U.S. 10-year yields will end the year at 2.2 percent, according to the weighted average of a Bloomberg News survey of 66 economists and strategists. The yield will reach 2.46 percent by the end of June 2012, the survey shows.

--Editors: Paul Cox, Kenneth Pringle

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg

To contact the editor responsible for this story: Dave Liedtka at

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