Treasury 10-year note yields traded almost at this year’s low before a report tomorrow forecast to show the U.S. added fewer jobs than required to reduce the nation’s unemployment rate.
U.S. debt was little changed after the Federal Reserve reiterated yesterday its pledge to buy U.S. securities as it tries to spur the economy. Economists predict the Labor Department’s monthly employment report tomorrow will show employers hired 140,000 workers in April, after an 88,000 gain the previous month that was the smallest since June. The jobless rate is forecast to be unchanged at 7.6 percent. Volatility in the Treasury market set a record low yesterday.
“Most people expect it to be on the weak side of consensus,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 21 primary dealers that trade with the Fed, referring to the jobs report. “The market is fairly close to its highs. We’ll stay well-bid until we see the new news.”
The benchmark 10-year note yield dropped one basis point or 0.01 percentage point to 1.63 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 2 percent note due in February 2023 added 1/32 or $0.31 per $1,000 face amount to 103 3/8.
The yield slid to 1.61 percent yesterday, the least since Dec. 11. It reached a record low 1.38 percent on July 25.
The European Central Bank led by President Mario Draghi cut its key interest rate to a record low as the 17-nation euro region struggles to emerge from recession. Policy makers meeting in Bratislava today lowered the main refinancing rate to 0.5 percent from 0.75 percent, a move predicted by 45 of 70 economists in a Bloomberg News survey.
U.S. yields during the next month to six weeks are “going to go lower” because the major central banks are easing, Remy of Daiwa said.
Applications for unemployment insurance payments fell 18,000 to 324,000 in the week ended April 27, the fewest since January 2008, Labor Department figures showed today in Washington. Economists forecast 345,000 claims, according to the median estimate in a Bloomberg survey.
“The claims numbers have been improving,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets, LLC, one of 21 primary dealers that trade with the Fed. “Ahead of tomorrow’s jobs numbers it will be hard to take any outsized position. The hiring side of the equation has been very lackluster. You really need to see the hiring side accelerate from here.”
The difference between U.S. and Japanese 10-year yields shrank to 1.04 percentage points yesterday, the narrowest since Jan. 14 based on closing prices. The extra yield 10-year Treasuries offered over same-maturity German bunds narrowed to 41 basis points yesterday, the smallest since February. A basis point is 0.01 percentage point.
U.S. and German government securities have both returned 1 percent this year, while those in Japan gained 2 percent, according to Bank of America Merrill Lynch indexes.
The Fed said yesterday it will keep buying bonds at a monthly pace of $85 billion while standing ready to raise or lower purchases as economic conditions evolve. The Bank of Japan is buying more than 7 trillion yen ($72 billion) of bonds a month as part of its own plan to spur growth.
The U.S. central bank purchased $1.5 billion of Treasuries maturing from February 2036 to August 2042 today, according to the New York Fed’s website.
Fed purchases have held down both yields and volatility. Bank of America Merrill Lynch’s MOVE index measuring price swings set a record low of 49.04 basis points yesterday. The average for the past year is 62.91 basis points.
Treasury gains may turn to losses during the year ahead, based on a Bloomberg survey. The 10-year yield will increase to 2.43 percent by the end of the first quarter of 2014, based on the responses with the most recent projections given the heaviest weightings.
The U.S. will sell $32 billion in three-year notes, $24 billion in 10-year debt and $16 billion in 30-year bonds on three consecutive days starting May 7, the Treasury announced yesterday.
The Treasury said it may gradually decrease coupon auction sizes and estimated its first floating-rate auction will be held in the fourth quarter this year or in the first quarter of 2014.
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