Bloomberg News

Treasuries Climb on Jobless-Claims Rise Before Payrolls

April 04, 2013

Treasuries’ Inflation Expectations Fall as Jobs Forecasts Cut

Traders work in the two-year and five-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago. Photographer: Daniel Acker/Bloomberg

Treasuries advanced, pushing 10-year note yields to a three-month low, after more Americans than projected filed applications for unemployment benefits last week in another sign the labor market may be slowing.

The benchmark yield traded below 2 percent for a 14th day, the longest stretch since January, as a report showed jobless claims rose by 28,000 to 385,000 in the week ended March 30, the highest since Nov. 24, according to the Labor Department. Ten- year yields fell earlier as the Bank of Japan (8301) doubled monthly bond purchases in a bid to encourage inflation. A report due tomorrow is forecast to show the jobless rate remained at 7.7 percent.

“Demand for safety continues unabated, and until we get sustained growth, it will continue with the domestic and global issues,” said James Camp, managing director of fixed income in St. Petersburg, Florida, at Eagle Asset Management Inc., which oversees $21.5 billion. “There has been a cry to short Treasuries, and those have been the worst trades in the capital markets.” A short position is a bet that an asset’s value will decline.

The U.S. 10-year yield fell five basis points, or 0.05 percentage point, to 1.76 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. It touched 1.756 percent, the least since Jan. 2. The price of the 2 percent note maturing in February 2023 rose 14/32, or $4.38 per $1,000 face value, to 102 4/32.

Moving Averages

The yield closed below its 100-day moving average of 1.83 percent for the first time since Dec. 11 yesterday after a weaker-than-forecast private jobs report, and today fell toward its 200-day moving average at 1.74 percent. Moving averages are indicators of momentum.

Having fallen below the bottom of the trading range, which had been between 1.8 percent and 2.08 percent, benchmark 10-year Treasury notes now have bullish momentum, according George Davis, chief technical analyst for fixed income in Toronto at the bank’s RBC Capital Markets unit. Toronto at the bank’s RBC Capital Markets unit.

“We’ve had better economic data in general this year, and some resolution of the Cyprus issue, and still Treasuries rejected the top end of the range, and have performed strongly, meaning the bar is high for economic data to move the market,” Davis said at the Bloomberg News building in New York.

The yield on the 30-year bond dropped six basis points to 2.99 percent, touching that level for the first time since Jan. 24, while breaching its 100-day moving average at 3.02 percent. Its 200-day moving average is 2.9 percent.

‘Grind Lower’

U.S. government securities rose to the costliest level this year. The 10-year term premium, a model that includes expectations for interest rates, growth and inflation, was at negative 0.8 percent today, the most expensive since Dec. 28. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

Heading into the release of February payroll data last month “the talk was we’re going to 2.25 percent,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 21 primary dealers that trade with the Fed. “Now it’s, ‘are we going to 1.50 percent’ tomorrow. It feels like we could continue to grind lower.”

Employers may have hired 190,000 workers last month, a report due tomorrow is forecast to show, down from a gain of 236,000 in February that drove benchmark yields to an 11-month high of 2.08 percent on March 8 when the Labor Department released the report.

Bank Buying

The rise in jobless claims reported today may reflect the difficulty the government has adjusting the figures around the Easter holiday and spring break at schools. The median forecast of 47 economists surveyed by Bloomberg called for a drop to 353,000. Before adjusting for seasonal variations, claims fell by almost 1,600.

The Federal Open Market Committee said last month it would keep buying bonds as long as unemployment remained above 6.5 percent and the outlook for inflation was for a rate of less than 2.5 percent.

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, was 2.5 percentage points. It touched 2.4778, the least since Jan. 7. The five-year average is 2.03 percentage points.

The Fed and the BOJ are both buying government bonds to spur growth by putting downward pressure on borrowing costs. The U.S. central bank purchases $85 billion of Treasury and mortgage debt a month, including $1.575 billion of Treasuries today maturing between February 2036 and May 2042.

Rally ‘Surprise’

With Haruhiko Kuroda presiding over his first meeting since becoming BOJ governor, the board streamlined its asset-purchase programs and said it will buy 7 trillion yen ($73 billion) of bonds a month. The BOJ also said it will target Japan’s monetary base instead of the rate banks charge each other on overnight loans.

“People just think 10-year government bonds in Japan are going to zero and the only thing left to buy are U.S. Treasuries,” said Thomas di Galoma, a managing director at Navigate Advisors, a brokerage for institutional investors in Stamford, Connecticut. “This rally has got people by surprise.” Japan’s 10-year yield fell as much as 12.5 basis points today to 0.44 percent.

The U.S. government will sell $66 billion of notes and bonds on three consecutive days next week, starting with $32 billion of three-year notes on April 9, followed by $21 billion of 10-year debt the next day and $13 billion of 30-year securities on April 11.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net


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