Treasury 10-year note yields fell to the lowest level in three weeks after China’s non-manufacturing industries expanded at a slower pace in September and before a report that may indicate a similar decline in the U.S.
Thirty-year yields dropped to the least since Sept. 28 on bets that reports this week will signal the U.S. labor market is deteriorating. Demand for havens was buoyed as Spanish Prime Minister Mariano Rajoy said yesterday he has no plans to request a bailout soon. President Barack Obama and Republican challenger Mitt Romney will debate economic policy in Denver today. American companies added fewer workers last month, ADP Employer Services will say, according to a Bloomberg survey.
“The macro data is not going to come in such that risk assets will remain supported, so a couple of factors are coming together and making Treasuries well bid,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “A key bit of news has been this denial by Rajoy that an aid request is imminent. This has clearly taken some of the momentum out of risk assets across the board and is benefitting safe havens.”
The yield on benchmark 10-year notes dropped two basis points, or 0.02 percentage point, to 1.61 percent at 7:16 a.m. New York time, based on Bloomberg Bond Trader data, after falling to 1.60 percent, the lowest since Sept. 7. The 1.625 percent security due in August 2022 gained 5/32, or $1.56 per $1,000 face amount, to 100 6/32.
The 30-year bond yield was little changed at 2.80 percent, after reaching 2.79 percent.
Treasuries are becoming more expensive, based on the 10- year term premium, a model created by economists at the Fed that includes expectations for interest rates, growth and inflation. The gauge fell to negative 0.95 percent, approaching the record low of negative 1.02 percent on July 24. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
ADP will say employers added 140,000 jobs, down from a 201,000 gain in August that was the most since March, according to the median prediction of 38 economists surveyed by Bloomberg. A government report in two days’ time will show that the jobless rate rose to 8.2 percent last month from 8.1 percent in August, according to a separate Bloomberg survey. The Labor Department issues the figure on Oct. 5.
The purchasing managers’ index from the Chinese government and logistics federation fell to 53.7 last month from 56.3 in August. Readings above 50 indicate expansion.
The Institute for Supply Management’s non-manufacturing index for the U.S., which covers almost 90 percent of the economy, slipped to 53.4 in September from 53.7 the previous month, according to the median forecast of 77 economists in a Bloomberg News survey. The Tempe, Arizona-based group’s index, which measures industries from utilities and retailing to health care, housing and finance, is due at 10 a.m. New York time.
The Federal Reserve is buying $40 billion of mortgage bonds a month and it pledged to hold the federal funds rate near zero at least through mid-2015 to support the economy.
The central bank is also swapping shorter-term Treasuries in its holdings with those due in six to 30 years. It plans to purchase as much as $5.25 billion of securities maturing from October 2018 to August 2020 today as part of the program, according to Fed Bank of New York’s website.
Europe is the biggest risk to global markets, said Ramin Toloui, the Singapore-based co-head of emerging markets portfolio management at Pacific Investment Management Co., who added in interview today with Haslinda Amin on Bloomberg Television that global economic fundamentals are weak.
Treasuries stayed higher as a report showed euro-area services and manufacturing last month stayed below the 50 level that signals growth, even as it improved.
A composite index based on a survey of purchasing managers in both industries in the 17-nation euro area rose 46.1 from 45.9 in August, London-based Markit Economics said today.
Bill Gross, who runs the world’s biggest bond fund at Pimco, said the U.S. will no longer be first destination of global capital in search of safe returns unless the gap between spending and debt is addressed, in his monthly outlook yesterday on the company’s website.
Pimco, which is based in Newport Beach, California, and is a unit of the Munich-based insurer Allianz SE (ALV), managed $1.82 trillion of assets as of June 30.
The presidential debate at the University of Denver is scheduled to start at 7 p.m. local time, according to the school’s website.
Record-low yields are proving no deterrent to buyers, aiding the government in its efforts to borrow as total public debt outstanding rises above $16 trillion.
U.S. debt securities held by domestic buyers, excluding the Fed, rose 10.7 percent in the first seven months of this year to $3.61 trillion, compared with a 6.9 percent increase for countries from China to Germany, according to data from the Treasury Department and compiled by Bloomberg.
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