Treasury 10- and 30-year yields rose to the highest since April after data on payrolls, consumer confidence and manufacturing added to signs the U.S. economic recovery is gathering momentum.
Longer-term yields rose for a second week after the Labor Department said the economy has added 200,000 jobs on average in the past three months, and as consumer confidence unexpectedly rose in in January. The Federal Reserve will buy between $9.25 billion and $12.25 billion of securities next week as part of its efforts to stimulate economic growth.
“The market is focusing more on positive indicators of moderate strength than negative numbers,” said Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York. “The promise of additional easing has also bolstered risk markets, which has taken some of the steam out of Treasuries.”
Treasury 10-year note yields climbed on the week seven basis points, or 0.07 percentage point, to 2.02 percent, according to Bloomberg Bond Trader data. They reached 2.04 percent, the highest since April 13. The price of the 1.625 percent security due in November 2022 dropped 18/32 or $5.63 per $1,000 face value to 96 17/32.
The yield on 30-year bonds reached 3.24 percent, the highest since April 5. Break-even rates on 30-year inflation- protected securities, or how much investors estimate consumer prices will rise over the life of the securities, touched the highest level since September.
“You’re seeing still-positive economic data surface,” said Sean Simko, who oversees $8 billion at SEI Investments Co. (SEIC:US) in Oaks, Pennsylvania. “It’s an environment that’s not going to push yields significantly higher in the near term, but it’s an environment that’s healing and showing growth.”
The Thomson Reuters/University of Michigan index of consumer sentiment climbed to 73.8 in January from 72.9 in December. The gauge was projected to drop to 71.5, according to the median forecast of 62 economists surveyed by Bloomberg. It compared with a preliminary reading of 71.3.
The Institute for Supply Management’s manufacturing index climbed to 53.1 last month from December’s 50.2, the Tempe, Arizona-based group’s report showed today. Readings above 50 signal expansion. The figure exceeded the highest estimate in a Bloomberg survey of 86 economists. The median forecast was 50.7.
U.S. employers added 157,000 jobs last month following a revised 196,000 advance in December and a 247,000 surge in November, Labor Department figures in Washington showed. January’s increase was less than the advance of 165,000 that was the median forecast of 90 economists surveyed by Bloomberg.
Treasuries rallied early yesterday after the Labor Department said the unemployment rate rose to 7.9 percent in January, undermining speculation that the Fed might begin winding down its $85 billion a month in asset purchases. A survey projected the jobless rate to hold steady at 7.8 percent.
The central bank said Jan. 30 that it would continue the purchases and left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and inflation remains no more than 2.5 percent.
U.S. government debt gained Jan. 30 after the Commerce Department said the U.S. economy unexpectedly shrank in the fourth quarter and the Fed reiterated its commitment to asset purchases to push down yields and lift growth.
“The fundamental picture supports the idea of pausing at 2 percent as the data has been positive, but sluggish,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “We should continue to see higher rates, but slowly. Right now we are in a very tight range.”
The Federal Open Market Committee said in a statement that growth, while slowed by “transitory factors,” faces “downside risks” even after strains in global financial markets have eased. The expansion will pick up and unemployment will fall in response to “appropriate policy accommodation,” Fed officials said in a statement after a two-day meeting.
Fed policy makers said in the statement they may end their $85 billion monthly bond purchases sometime in 2013, with members divided between a mid-or end-of-year finish.
Fed Bank of St. Louis President James Bullard, an advocate for slowing stimulus, said today that U.S. job growth in the past three months has been “an encouraging sign.”
At its December meeting, the FOMC announced Treasury purchases of $45 billion a month in addition to $40 billion a month of mortgage-debt purchases begun in September. Policy makers didn’t set a limit on the program’s size or duration and said the purchases will continue “if the outlook for the labor market does not improve substantially.”
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