Treasuries rose for the first time in four days as U.S. job growth slowed more than forecast last month, fueling bets the Federal Reserve will start a third round of debt buying under the quantitative-easing stimulus strategy.
The benchmark 10-year note reversed earlier losses as a report showed U.S. employers added 96,000 positions in August, versus a revised 141,000 increase the previous month. Fed Chairman Ben S. Bernanke, who has vowed to hold the key interest rate at virtually zero until late 2014, said last week unemployment was of “grave concern.”
“The bottom line is the Fed has a smoking gun now,” said Richard Schlanger, who helps invest $20 billion in fixed-income securities as vice president at Pioneer Investments in Boston. “The question is, when are they going to pull the trigger?”
The benchmark 10-year yield slid seven basis points, or 0.07 percentage point, to 1.61 percent at 9:49 a.m. in New York. It touched 1.74 percent before the payrolls report, the highest level since Aug. 22. The price of the 1.625 percent note maturing in August 2022 gained 5/8, or $6.25 per $1,000 face amount, to 100 1/8.
Thirty-year bond yields decreased five basis points to 2.75 percent.
Treasuries fell yesterday as risk appetite swelled on a European Central Bank plan to buy euro-area government bonds to contain the region’s debt crisis.
The U.S. jobless rate decreased to 8.1 percent, staying above 8 percent for a 43rd month. Economists in a Bloomberg News survey had forecast the report would show the U.S. added 130,000 jobs and that the jobless rate remained at 8.3 percent.
“We are seeing modest job growth that isn’t sufficient to keep up with population growth,” said Jay Mueller, who manages about $3 billion of bonds at Wells Capital Management in Milwaukee. “The weak data makes the Fed more likely to attempt quantitative easing. The central bank in Europe is becoming pretty expansive, and the Fed is getting closer to jumping on that bandwagon.”
Fed policy makers are scheduled to meet Sept. 12-13.
The payrolls data came two months before the U.S. presidential election. Employment and the economy are central themes in the campaign, with President Barack Obama and Republican challenger Mitt Romney each trying to convince voters they can best energize the expansion and create jobs.
“It’s the No. 1 topic going into the election,” said Chris Ahrens, an interest-rate strategist in Stamford, Connecticut, at UBS AG, one of the 21 primary dealers that trade with the Fed. “The sense in the market is that the central banks are on the move and are trying to be as supportive to the economic environment as possible. The bar is low for the Fed to institute another round of asset purchases.”
The Fed will give “strong hints’’ or provide “positive action” at next week’s policy meeting, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. The central bank will likely ease further through “open ended” purchases of Treasuries and mortgages, he said.
Ten-year note yields dropped 11 basis points to 1.45 percent on June 1, after the Labor Department reported payrolls rose by 69,000 jobs in May, trailing a Bloomberg survey forecast of 150,000.
Treasuries climbed on Aug. 31 as Bernanke, speaking at an economics conference in Jackson Hole, Wyoming, said the costs of “nontraditional policies” to spur the economy appeared manageable when considered carefully. He said the Fed stands ready to act if necessary, stoking speculation he’ll extend the time frame on the Fed’s pledge to hold interest rates at virtually zero until late 2014 or restart bond purchases.
The Fed bought $2.3 trillion of securities from 2008 to 2011 in two rounds of quantitative easing. It also has kept its benchmark rate at zero to 0.25 percent since December 2008, in the midst of the worst financial crisis since the Great Depression.
The central bank is scheduled to sell as much as $8 billion of Treasuries today due from February 2013 to February 2014 as part of Operation Twist, a program to swap shorter-term securities in the Fed’s holdings with longer-term debt to put downward pressure on borrowing costs.
Treasuries also dropped yesterday after Roseland, New Jersey-based ADP Employer Services said U.S. companies added 201,000 workers in August, versus a Bloomberg survey’s forecast for 140,000. Jobless claims decreased by 12,000 to 365,000 in the week ended Sept. 1, the fewest in a month, the Labor Department reported. The median estimate of economists surveyed by Bloomberg called for a decline to 370,000.
The U.S. will sell $66 billion next week in notes and bonds: $32 billion in three-year debt, $21 billion in 10-year securities and $13 billion in 30-year bonds, the Treasury announced yesterday, match the amount at the last refunding in November.
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