Treasuries declined for a fourth day, the longest losing streak since January, after initial claims for jobless benefits in the U.S. unexpectedly fell to a six-week low, spurring appetite for higher-yielding assets.
U.S. 10-year note yields rose the most in a month before government nonfarm-payrolls data tomorrow that are forecast to show employers added 165,000 jobs in February. The benchmark yields increased a month ago when payrolls grew by 157,000 positions. The Treasury said it will sell $66 billion of notes and bonds next week. Stocks rose.
Investors “are advocating this number will show some definite strength,” Thomas di Galoma, a managing director at Navigate Advisors, a brokerage for institutional investors in Stamford, Connecticut, said of tomorrow’s jobs report. “We’ve got supply next week. All of this is putting pressure on the marketplace.”
The 10-year note yield increased six basis points, or 0.06 percentage point, to 2 percent. It was the biggest intraday jump since Feb. 5, and the highest level since Feb. 25. The yield’s last four-day losing stretch ended Jan. 29. The price of the 2 percent security due in February 2023 dropped 17/32, or $5.31 per $1,000 face amount, to 100 1/32 at 5 p.m. New York time, according to Bloomberg Bond Trader data.
The benchmark yield has traded between 1.83 percent and 2 percent since Feb. 26. A day earlier, it dropped as much as 11 basis points, the most since November, as polls showed inconclusive elections might leave Italy with a hung parliament, spurring speculation Europe’s debt crisis would worsen.
Thirty-year bond yields rose five basis points to 3.2 percent, the highest since Feb. 21.
Treasuries dropped after first-time unemployment claims unexpectedly fell by 7,000 to 340,000 in the week ended March 2, the lowest since the period ended Jan. 19, according to data today from the Labor Department in Washington. The median forecast of economists surveyed by Bloomberg was for an increase to 355,000. The four-week average dropped to a five-year low.
The Dow Jones Industrial Average rose as much as 0.4 percent to 14,354.69, a record.
“It’s hard for us to stay at really low yields with equities doing what they are doing,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Federal Reserve. “Maybe with NFP tomorrow we’ll get to confirm or set the market on a different trend.”
U.S. nonfarm payrolls have risen by an average of 177,000 jobs a month over the past six months. Ten-year yields increased three basis points to 2.02 percent on Feb. 1, when the total for January was close to the 165,000-position forecast in a Bloomberg survey.
The yields rose four basis points yesterday after ADP Research Institute said U.S. companies added 198,000 workers last month, exceeding the 170,000 estimated by economists.
“The bias is for a stronger number,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “A significant upward surprise would push 10-year yields back toward 2 percent.”
Fed purchases of bonds under the quantitative-easing stimulus strategy have helped keep 10-year yields below their five-year average of 2.86 percent as central banks around the world stimulate their economies to try to revive growth. Fed Chairman Ben S. Bernanke in congressional testimony last week defended the buying, saying the benefits of reducing borrowing costs and fueling growth outweigh any potential drawbacks.
The central bank purchased $3.68 billion of government debt today maturing from February 2019 to February 2020. It’s buying $85 billion in Treasury and mortgage securities a month to support the economy until policy makers see significant improvement in the labor market.
Treasuries lost 0.6 percent this year through yesterday, according to Bank of America Merrill Lynch indexes, while the Standard & Poor’s 500 Index returned 8.5 percent including reinvested dividends.
Ten-year yields will climb to 2.29 percent by year-end, according to the weighted-average estimate of analysts surveyed by Bloomberg.
The U.S. will auction $32 billion of three-year notes on March 12, $21 billion of 10-year debt the next day and $13 billion of 30-year securities on March 14, the Treasury said.
Trading volume rose to $295 billion today after touching $183 billion on March 4, the lowest level this year, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. The average daily Treasuries volume for the past 12 months was $247 billion.
Volatility as measured by the Bank of America Merrill Lynch MOVE index jumped to 60.5 basis points today, the highest level since Feb. 13. The gauge, which tracks the outlook for swings in U.S. government debt rates, has averaged 66.4 basis points over the past year.
The outstanding amount of zero-coupon U.S. Treasury notes and bonds rose in February by the most in more than two years as investors bet inflation will stay low even as the Fed continues monetary stimulus.
Strips, short for separate trading of registered interest and principal securities, are created by Wall Street firms that split bonds into their face amount and individual coupon payments. The amount of strips, also known as zero-coupon debt, rose by $6.7 billion, the biggest climb on a monthly basis since September 2010, according to the data. It rose to $201 billion at the end of last month, the most since August 2011, Treasury Department data showed yesterday.
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