Bloomberg News

U.S. 30-Year Yields Falls to Record on U.S. May Jobs Gain

June 01, 2012

Treasuries rallied, pushing 30-year bond yields to a record low, after the economy added fewer jobs in May than economists forecast, indicating the worsening European sovereign-debt crisis may restrain U.S. growth.

U.S. 10-year note yields dropped below 1.5 percent for the first time after the Labor Department reported that U.S. employers added 69,000 jobs in May after an increase of 77,000 the previous month. The difference between the yields on the 10- year and 30-year securities narrowed to almost the least since January on reduced concern inflation will erode the value of fixed-income assets.

“We are on the edge of a more serious slowdown than what was otherwise anticipated coming into the data,” said Christopher Sullivan, who oversees $1.9 billion as chief investment officer at United Nations Federal Credit Union in New York. “On top of the European issues, the further decline in growth here and in other parts of the world are manifesting safe-haven buying.”

The benchmark 10-year yield fell 11 basis points, or 0.11 percentage point, to 1.45 percent at 4:59 p.m. New York time, according to Bloomberg Bond Traders prices. The 1.75 percent security maturing in May 2022 gained 31/32, or $9.69 per $1,000 face amount, to 102 3/4. The yield reached an all-time low for a third day, touching as low as 1.4387 percent.

Thirty-year bond yields declined 12 basis points to 2.52 percent, reaching as low as 2.5089 percent, below the record 2.5090 percent on Dec. 18, 2008, according to Federal Reserve figures beginning in 1953.

Important Levels

“There was supposed to be resistance at 1.50 percent, but with a lousy employment report, it didn’t amount to much,” said FTN Financial Chief Economist Christopher Low, the most accurate forecaster of Treasury note yields in 2011. Resistance is an area on a chart where pre-established orders may be clustered.

“People have been saying 1.25 percent, but the trading over the next few days will determine if 1.25 percent is realistic,” said Low who was the only one among 70 analysts in a Bloomberg News survey who predicted the yield would fall to 2 percent by the end of last year.

The gap between 10-year and 30-year securities narrowed to 108 basis points, close to the least since January. It closed at 107 basis points on May 21 after widening to a 2012 high of 120 basis points on May 1. The difference between the yield on the two-year and 10-year notes, dropped to 121 basis points, the least since June 2008.

“It’s a recalibration of growth expectations, as well as a pullback of global inflationary pressures,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

Global Bonds

As U.S. 10-year note yields drop to record lows, they are still yielding more than benchmark bond markets around the world, boosting demand for the securities. Yields on the 10-year note are 16 basis points higher than the average for comparable debt of nations from Germany to Australia, above the average of 12 basis points in the past year, data compiled by Bloomberg show.

Treasuries had their best performance last month since August, returning 1.8 percent, reflecting the declining stability of the 17-member euro currency amid a worsening sovereign debt crisis, according to indexes compiled by Bank of America Merrill Lynch. The MSCI All-Country World Index of shares slid 8.9 percent in the same period. The euro declined 6.6 percent versus the dollar in May, the most since September.

U.S. 10-year yields are down from 5.3 percent in June 2007, before the financial crisis intensified, and below the average of 4.96 percent during the past 20 years.

Value Measure

Valuation measures show Treasuries are at the most expensive levels ever. The term premium, a model created by economists at the Fed, touched negative 0.96 percent, the most expensive level ever. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

The U.S. central bank sold $8.6 billion of Treasuries due from September 2012 to April 2013 today, according to the Fed Bank of New York’s website. The sales are part of its program to replace $400 billion of shorter-term debt in its holdings with longer maturities by the end of this month to support the economy by keeping down borrowing costs.

The probability of more central bank policy action is 80 percent, up from 50 percent, after the jobs report, according to Morgan Stanley.

Investors have stepped up speculation that any add stimulus would focus on home-loan bonds after Fed Chairman Ben S. Bernanke sent a study to Congress in January that highlighted how housing is restraining the economic recovery.

Mortgage Bonds

Fannie Mae’s 3 percent securities gained 0.17 cent on the dollar more than a basket of Treasuries of similar duration today, the most since May 17, according to data compiled by Bloomberg. The debt trailed U.S. government notes in five of the previous six sessions.

The yield on the securities, which most affect home-loan rates because they’re priced closest to face value among actively traded debt, declined eight basis points to a record low 2.51 percent. All government-backed mortgage notes underperformed Treasuries by 64 basis points last month, the most since August, Barclays Plc index data show.

China’s Purchasing Managers’ Index fell to 50.4 last month from 53.3 in April, the statistics bureau and logistics federation said in Beijing. A separate gauge from HSBC Holdings Plc and Markit Economics showed a seventh straight contraction, the longest since the global financial crisis.

Economic Perspective

“Given the outlook for the global economy and the U.S., it looks like we’re joining Asia and Europe for a slowing of the economy,” said Gary Pollack, who helps manage $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “We could go to lower levels in yields.”

The median forecast of 85 economists in a Bloomberg News survey before today’s jobs report, was for an increase of 150,000 jobs. The unemployment rate rose to 8.2 percent, the Labor Department said.

Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, revised Commerce Department figures showed yesterday in Washington. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.

Germany’s two-year note yield slid to as low as minus 0.12 percent, the first time the rate on the securities has been negative. U.K. 10-year gilt yields fell to a record 1.493 percent.

Spain’s Debt

Spain’s Economy Minister Luis de Guindos said the country was in a “very difficult situation.”

“I don’t know if we’re on the edge of the precipice, but we’re in a very, very, very difficult situation,” de Guindos said in Sitges, Spain, late yesterday. Spain and Italy are where the “battle for the euro” is being fought, he said. The jobless rate in the 17-nation euro zone was at 11 percent in April and March, the European Union’s statistics office in Luxembourg said today.

The difference in yields between 10-year notes and Treasury Inflation Protected Securities, or TIPS, which represents traders’ expectations for the rate of inflation during the life of the bonds, fell to 2.02 percentage points, almost the lowest since January. It touched a 2012 low of 1.9 percentage points on Jan. 3 and a high of 2.45 percentage points on March 20.

Inflation Measure

A measure of price-increase predictions used by the Fed to set policy, the five-year, five-year forward break-even rate, which gauges the average inflation rate between 2017 and 2022, was 2.5 percent on May 29, down from a 2012 high of 2.78 percent on March 19. The rate slid nine basis points in April, the biggest monthly decline since December.

“In the U.S. we have an aggressive central bank, which has widely telegraphed that if there’s a slowing in growth they will act,” said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York, one of the 21 primary dealers that trade with the Fed. “That’s what to me provides a floor in rates, not so much in real rates, but in break-evens.”

To contact the reporters on this story: Susanne Walker in New York at; Daniel Kruger in New York at

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

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