Treasuries Decline for First Time in Three Days
Washington (Dec 5) Treasuries declined for the first time in three days before U.S. data analysts said will show employment growth picked up in the world’s biggest economy.
U.S. government securities this week pared gains from the previous two months. Businesses across the country are hiring workers in industries from software to finance, according to a Federal Reserve survey, adding to speculation employment is strong enough for the central bank to raise interest rates next year. The Fed will increase its benchmark in about 9 1/2 months, based on data compiled by Morgan Stanley.
“Treasuries trading a little nervously ahead of the payrolls report,” said John Davies, a U.S. interest-rate strategist at Standard Chartered Bank in London. The latest Fed commentary “gave the market pause for thought regarding the likely timing of a first hike. Consequently, the market is wary of a strong report today and any upside surprise to wage growth in particular.”
Benchmark 10-year yields rose three basis points, or 0.03 percentage point, to 2.27 percent as of 7:07 a.m. New York time, according to Bloomberg Bond Trader data. The 2.25 percent note due in November 2024 fell 9/32, or $2.81 per $1,000 face amount, to 99 7/8. The rate declined six basis points in the previous two days.
The Bloomberg U.S. Treasury Bond Index (BUSY) fell 0.3 percent this month through yesterday. It gained 1 percent in November and 1.1 percent in October.
Beige Book
“Employment gains were widespread,” the U.S. central bank said this week in its Beige Book survey, which is based on reports gathered on or before Nov. 24 by regional Fed banks.
The U.S. added 230,000 jobs in November, versus 214,000 in October, based on a Bloomberg News survey of economists. The unemployment rate held at 5.8 percent, according to a separate Bloomberg survey. Average hourly earnings advanced 2.1 percent last month from a year earlier, versus 2 percent in October, based on the responses.
“Investors are being cautious,” said Hideaki Kuriki, a bond trader in Tokyo at Sumitomo Mitsui Trust Asset Management Co. which manages the equivalent of $40.5 billion. “Treasuries are falling before payrolls. Employment is stable.”
Treasuries rose after the previous employment report on Nov. 7, sending the 10-year yield down nine basis points. There hasn’t been a bigger rally since.
Employers added more than 200,000 workers in October for a ninth consecutive month and the jobless rate dropped to the lowest level in six years, the report showed.
Average Earnings
The 2 percent gain in average hourly earnings added to evidence that wage inflation is in check. The figure has averaged 2 percent this year, unable to bounce back from the recession that began in December 2007 and ended in June 2009. It was as high as 3.6 percent in 2008.
A global economic slowdown led by Europe may keep the Fed from raising interest rates, said Will Tseng at Mirae Asset Global Investments Co. in Taipei.
“The global environment is not good,” Tseng said. “If there’s more uncertainty from Europe, then the Fed might postpone the first hike.”
Tseng said he bought Treasuries in November. Mirae Asset manages about $62 billion.
The Fed has kept its benchmark, the target for overnight loans between banks, in a range of zero to 0.25 percent since December 2008.
Source: Bloomberg
