Bloomberg News

Treasuries Set for Weekly Loss on Speculation U.S. Added Jobs Last Month

March 09, 2012

Treasuries headed for a weekly loss as economists said a government report today will show U.S. employers hired more than 200,000 workers for a third month, adding to signs the economy is gathering momentum.

Demand for the relative safety of U.S. debt was also damped as European stocks held yesterday’s rally after the Greek government said it reached its target in the biggest sovereign restructuring in history. Interest-rate swap spreads indicate increasing demand for yields higher than those on Treasuries.

“The firmer tone to so-called risk assets such as equities imparts a bit of an upside bias” to yields, said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “A lot clearly hangs on the U.S. payrolls data today. The key issues for Treasuries at the moment are sentiment in the equities market and domestic data.”

Yields on 10-year notes were little changed at 2.01 percent at 7:19 a.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 traded at 99 29/32. The yields have increased four basis points, or 0.04 percentage point, this week, the most since the five days ended Feb. 10.

The Stoxx Europe 600 Index was little changed after rising 1.6 percent yesterday. Futures on the Standard & Poor’s 500 Index were also little changed.

Estimates for the number of U.S. workers hired in February range from 125,000 to 275,000, according to a Bloomberg News survey of 94 economists before today’s report from the Labor Department. The median estimate is for an increase of 210,000. January’s gain of 243,000 was the most since April.

Swap Spread

The difference between the two-year swap rate and the yield on U.S. debt of a similar maturity narrowed to 24 basis points today, the lowest in almost seven months.

U.S. government bonds have lost 0.5 percent this year, while corporate debt has returned 3.2 percent, according to Bank of America Merrill Lynch indexes.

Treasuries fell yesterday as a majority of investors signaled their readiness to forgive some of Greece’s borrowings, boosting risk appetite and damping demand for the refuge.

Greece said today it has a 95.7 percent participation rate among investors after it received approval to activate so-called collective action clauses.

The U.S. government will sell $32 billion of three-year notes, $21 billion of 10-year debt and $13 billion of 30-year bonds next week. The auctions will take place over three days starting March 12.

Fed Operation

The Federal Reserve plans to sell as much as $8.75 billion of U.S. debt due from August 2013 to January 2014 today, according to the New York Fed’s website.

The central bank is in the process of swapping $400 billion of shorter-maturity Treasuries in its holdings with longer-term bonds to cap borrowing costs.

The Fed’s Open Market Committee is scheduled to hold a policy meeting on March 13. The central bank said in January that it would keep the benchmark interest rate at almost zero through at least late 2014.

The Fed has held its target for overnight lending in a range of zero to 0.25 percent since December 2008. The MSCI All Country World Index (MXWD) of stocks reached the lowest level since 2003 on March 9, 2009, three years ago today. It has returned about 90 percent since then including reinvested dividends. Treasuries gained 15 percent in the period, the Bank of America indexes show.

Treasury Volatility

Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, rose to 76.6 yesterday after dropping to 75.1 the previous day. The measure has tumbled from 117.8 on Aug. 8 as central banks stepped up efforts to ease tension in financial markets.

Ten-year yields, which have been in a range of 1.79 percent to 2.09 percent this year, will advance to 2.53 percent by Dec. 31, according to the average forecast of economists in a Bloomberg News survey, with the most recent projections given the heaviest weightings.

To contact the reporters 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: Daniel Tilles at dtilles@bloomberg.net


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