The yield on the Treasury's 30-year bond sank to a 10-month low Thursday, as weaker-than-forecast economic signals before the April employment report led traders to unwind hedges against higher interest rates.
Government security prices rallied as the inflation component of an April manufacturing survey was lower than estimated and initial jobless claims unexpectedly rose to a nine-week high, spurring concern employers may not have added as many jobs last month as economists have forecast. The Labor Department will release figures Friday that are predicted to show the economy added the most jobs since November, according to the median forecast in a Bloomberg News survey.
“People had lofty expectations that things were getting better, not just staying on track,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 22 primary dealers that trade with the Federal Reserve. “That’s being rethought. The market’s a little bit nervous.”
Thirty-year bond yields dropped six basis points, or 0.06 percentage point, to 3.40 percent at 2:54 p.m. New York time, according to Bloomberg Bond Trader data. It was the lowest level since June 20 of last year. The price of the 3.625 percent security due in February 2044 climbed 1 1/8, or $11.25 per $1,000 face amount, to 104 6/32.
The yield on the benchmark 10-year note fell five basis points to 2.60 percent and touched 2.59 percent, the least since March 3. It dropped five basis points Wednesday in the steepest decline on a closing basis since April 4.
The Bloomberg U.S. Treasury Bond Index rose 2.4 percent this year through Wednesday, versus a 5 percent gain from bonds issued by governments in the euro region where growth is projected by economists to trail behind that of the U.S.
Long bonds rallied for a fourth month in April, the longest stretch of gains since September 2009, a period during the financial crisis when the economy lost an average 309,000 jobs per month. Ten-year notes rose last month for the first time since January.
Treasurys gained Wednesday after the Fed reiterated that it’s likely to keep the benchmark interest rate close to zero for a “considerable time” after bond purchases end. Policy makers have held the rate at zero to 0.25 percent since 2008 to support the economy.
The central bank also reduced the monthly pace of its bond- buying by $10 billion, to $45 billion, the fourth cut of that size since policy makers said in December they would taper the stimulus program.
The U.S. unemployment rate dropped to 6.6 percent this month, matching the lowest level since January 2008, according to the median forecast of 86 economists in a Bloomberg News survey. The Labor Department will release the data Friday morning. A separate survey of 94 economists estimated the U.S. added 218,000 jobs in April, the most since November.
On April 4, Treasury five-year notes gained the most since January after a report showing U.S. employers added fewer jobs than forecast in March. U.S. debt snapped a three-day losing streak on Feb. 7 after data showed employers added fewer jobs than forecast for a second month in January.
Bonds also advanced Wednesday as the government reported the economy grew 0.1 percent in the first quarter, versus a 2.6 percent gain in the prior three months.
“Every number that’s been out in this past week has not been good,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “You can’t tell me there’s been one big bright spot. People are starting to take bets off the table” that Treasurys will fall in price, he said.
Jobless claims increased by 14,000 to 344,000 in the period ended April 26, the highest level since Feb. 22, Labor Department data showed Thursday in Washington. The median forecast in a Bloomberg survey of economists called for 320,000.
“We’re continuing this pattern of uneven data,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “That’s giving comfort to Treasury investors.”
Manufacturing expanded in April by the most this year, according to an Institute for Supply Management index that rose to 54.9 from the prior month’s 53.7. The Tempe, Arizona-based group reported its data Thursday. Readings above 50 indicate expansion. The median forecast of economists surveyed by Bloomberg called for 54.3.
The prices-paid component fell for a third consecutive month to 56.5 in April, down from 59 the month before and compared with the forecast of 59.5 in a Bloomberg News survey.
Household purchases, which account for about 70 percent of the economy, climbed 0.9 percent, the most since August 2009, after a 0.5 percent gain in February that was larger than previously estimated, Commerce Department figures showed in Washington. The median forecast of 77 economists in a Bloomberg survey called for a 0.6 percent gain. Incomes increased by the most in seven months.
The Treasury will sell $29 billion in three-year notes on May 6, $24 billion in 10-year notes on May 7 and $16 billion in 30-year bonds on May 8.
The department said it will reduce the size of two-and three-year note auctions this quarter as a shrinking budget deficit gives the government scope to reduce borrowing.
Three-year note sales will decline to $29 billion in May, $28 billion in June and $27 billion in July, from the current level of $30 billion, a Treasury official told reporters in Washington Wednesday. Auctions of two-year notes will drop to $31 billion in May, $30 billion in June and $29 billion in July, from $32 billion, the official said.
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