Treasuries tumbled, pushing up yields up from the lowest this year, after data showed the U.S. jobs market gained traction in July, easing concern the economic recovery is stalling.
U.S. two-year note yields increased from a record low yesterday as the Labor Department said the U.S. added 117,000 jobs last month as traders prepared to bid next week on $72 billion in notes and bonds. Yields on 10-year notes rose to within 2.19 percentage points of two-year securities, the first increase since July 25. Stocks extended the worst slump since 2009 amid concern America may lose its top credit rating.
“A better print is a relief,” said Sergey Bondarchuk, an interest-rate strategist in New York at BNP Paribas SA, one of the 20 primary dealers that trade directly with the Fed. “It should provide some confidence or at least calm some fears, but it’s still not a game changer essentially, so that’s why the sell-off is tapering off.”
Yields on 10-year notes rose four basis points, or 0.04 percentage point, to 2.44 percent at 11:59 a.m. in New York, according to Bloomberg Bond Trader prices. The yield added as much as 12 basis points. The 3.125 percent securities maturing in May 2021 dropped 11/32, or $3.44 per $1,000 face amount, to 105 29/32.
Yield Quotes
Thirty-year-bond yields rose five basis points to 3.72 percent and two-year note yields added two basis points to 0.28 percent, after hitting a record low of 0.2527 percent yesterday.
Treasuries returned 5.9 percent this year, while global governments returned 3 percent, according to
Bank of America Merrill Lynch’s data.
Rates on Treasury six-month bills due Aug. 11 were at 0.005 percent. The rate rose to 0.26 percent on July 29, the highest since they were issued in February, on concern Congress wouldn’t raise the debt limit by the Aug. 2 deadline.
One-month bill rates touched negative 0.0305 percent, down from 0.1825 percent on July 29. Rates on three-month bills today touched negative 0.0051 percent.
“We’re very rich, but for the next couple of days it’s hard to sell Treasuries because the market has so much momentum,” said Anthony Cronin, a trader at Societe Generale SA in New York, one of the 20 primary dealers that trade with the Federal Reserve. “The Treasury market views it as a pretty encouraging report. It shows that the economy is not falling off a cliff.”
Debt Sales
The U.S. will sell $32 billion of three-year notes, $24 billion of 10-year debt and $16 billion of 30-year bonds on three consecutive days beginning Aug. 9. The amounts are the same as the grouping of auctions of these maturities sold in May.
July payrolls rose after a 46,000 increase in June that was larger than earlier estimated, the Labor Department said today in Washington. The median estimate in a Bloomberg News survey called for a gain of 85,000. The jobless rate dropped to 9.1 percent as discouraged workers left the labor force. Average hourly earnings climbed 0.4 percent.
“The numbers were better than anticipated which was positive for risk and slightly negative for Treasuries,” said Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “This number provides a glimmer of hope that we may start to see a turn in economic performance.”
Fed Meets
Fed policy makers meet Aug. 9 amid speculation they may consider additional steps to bolster the U.S. economy.
“The Fed will hold off and watch the data,” said Dean Maki, chief U.S. economist at
Barclays Capital Inc. in New York in an interview on Bloomberg Television. “The job market and the consumers are the key. To say we are entering a
recession is a stretch.”
The FOMC voted on June 22 to conclude its $600 billion bond-buying program at the end of that month, and to maintain its balance sheet near record levels by reinvesting proceeds from its securities holdings. The panel also affirmed its pledge to keep its benchmark interest rate near zero for an “extended period.”
Treasury two-year note yields fell to a record low yesterday amid growing concern that a weakening U.S. economy and debt problems in Europe will prompt the Fed to take additional steps to bolster growth.
S&P Watch
The Standard & Poor’s 500 Index fell 2.2 percent after dropping 4.8 percent yesterday.
S&P spokesman John Piecuch said in an e-mail that the ratings company would not comment on speculation the U.S. rating will be cut. Moody’s Investors Service and Fitch Ratings this week affirmed their AAA ratings on U.S. government debt.
Spanish and Italian bonds rallied on speculation that policy makers may take more action to arrest the crisis. Spanish 10-year yields dropped 22 basis points to 6.06 percent, while similar maturity Italian debt declined 4 basis points to 6.16 percent.
The European Central Bank yesterday signaled it resumed bond purchases as it offered banks more cash to stop the debt crisis from engulfing Italy and Spain amid speculation the U.S. Fed may consider a third round of debt buying, known as quantitative easing.
The ECB action follows the unexpected interest rate cut by Switzerland’s central bank and Japan’s foreign exchange market intervention to address economic distress from a weak dollar.
