Bloomberg News

U.S. 10-Year Yields Fall Toward Month Low Before Job Data

September 05, 2012

Treasuries halted a decline from yesterday before U.S. reports this week that economists said will show employment is struggling to pick up.

Benchmark 10-year yields were three basis points from the lowest level in a month ahead of government data projected to show payrolls grew at a slower pace, adding to the case for the Federal Reserve to begin a third round of asset purchases to stimulate the economy. European officials meet today and tomorrow to discuss measures to stem the region’s debt woes.

“The market is clearly anticipating a fairly weak jobs report and the Fed’s consequent response to it,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The weakness of the labor market is the Fed’s primary concern, and demand for Treasuries should be well underpinned ahead of these reports.”

The 10-year yield was little changed at 1.57 percent at 6:52 a.m. in New York after falling as much as three basis points. The rate dropped to 1.54 percent yesterday, the lowest level since Aug. 6. The 1.625 percent note due in August 2022 traded at 100 1/2.

U.S. payrolls increased by 125,000 last month, less than the 163,000 jobs added in July, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department report on Sept. 7. ADP Employer Services will say tomorrow that employment by companies increased by 143,000 in August, the least since May, a separate survey showed.

‘Number Undershoots’

“If the payroll number undershoots the market consensus, expectations of another round of quantitative easing will rise, and Treasury yields will fall further,” said Hitoshi Asaoka, a senior strategist at Mizuho Trust & Banking Co. in Tokyo. “Even if it doesn’t, expectations of additional easing are more likely to remain.”

U.S. government bonds have returned 2.5 percent this year, through yesterday, Bank of America Merrill Lynch index data show. That compares with a 13 percent gain in the Standard & Poor’s 500 Index (SPX), including reinvested dividends.

European Central Bank President Mario Draghi said Sept. 3 that the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival, according to a recording obtained by Bloomberg of comments to lawmakers in a closed-door session at the European Parliament. Such purchases wouldn’t amount to financing deficits as long as they were confined to buying shorter-dated securities, he said.

Spain, Italy

Draghi’s comments fanned speculation the ECB will decide to buy government securities to lower borrowing costs and curb the euro region’s financial turmoil. Spain’s two-year note yields fell to the lowest since April today, and those in Italy slid to the least since March.

“Risk appetite could pick up if the ECB can deliver decisive measures,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, one of the 21 primary dealers obliged to bid at U.S. debt auctions. “There’s some kind of optimism for the ECB.”

Speaking on Aug. 31 in Jackson Hole, Wyoming, Fed Chairman Ben S. Bernanke said the costs of “nontraditional policies” appeared manageable when considered carefully. That implies Fed policy makers “should not rule out the further use of such policies if economic conditions warrant,” he said.

The policy-setting Federal Open Market Committee next meets on Sept. 12-13.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net;

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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