BLBG: Treasuries Fall as Focus Shifts to Auctions After Jobs Report
By Susanne Walker and Cordell Eddings
Sept. 4 (Bloomberg) -- Treasuries fell as investors shifted focus to next week’s sales of $70 billion in notes and bonds after a government report showed the American economy lost fewer jobs in August than economists forecast.
U.S. government securities declined even as the unemployment rate rose to a 26-year high of 9.7 percent. U.S. employers eliminated 216,000 positions last month, less than the 230,000 median forecast in a Bloomberg News survey. The Treasury will auction $38 billion of 3-year notes, $20 billion in 10-year securities and $12 billion in 30-year bonds on three consecutive days beginning Sept. 8.
“The employment report was a bit of a mixed bag,” said Christopher Bury, co-head of fixed-income rates at Jefferies & Co., one of the 18 primary dealers that trade directly with the Federal Reserve. “From here the prospect of supply is going to keep prices from going much higher.”
The yield on the 10-year note rose three basis points, or 0.03 percentage point, to 3.37 percent at 10:32 a.m. in New York, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 fell 7/32, or $2.17 per $1,000 face amount, to 102 3/32. Yields have declined seven basis points this week.
Economists surveyed by Bloomberg expected the unemployment rate to increase to 9.5 percent from 9.4 percent in July. Rising joblessness underscores Treasury Secretary Timothy Geithner’s judgment that it’s “too early” to start exiting from the unprecedented stimulus measures helping stabilize the economy.
‘Still Absent’
“The key ingredient for a sustainable recovery is still absent,” said Tony Crescenzi, a market strategist and portfolio manager at Pacific Investment Management Co., manager of the world’s biggest bond fund. “We need income growth to produce self-reinforcing expansion.”
Officials at Newport Beach, California-based Pimco have said there is a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy. U.S. growth rates will slow to around 2 percent over the next several years, according to the firm.
President Barack Obama has pushed the nation’s marketable debt to an unprecedented $6.78 trillion in an effort to spur economic growth, support the financial system and service record deficits. The budget shortfall is projected to increase to $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office.
The $70 billion of notes and bonds to be sold next week is less than the $75 billion the department raised through the sale of these maturities at last month’s quarterly refunding.
‘Hard To Be Bullish’
“The borrowing demands of the government make it really hard to get too bullish on Treasuries,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee.
Treasury notes fell Aug. 7, with 10-year yields rising to their highest levels in almost two months, after the Labor Department said American employers cut fewer jobs in July than forecast. Yields rose that week the most since March 2003 as the data added to signs the economy was recovering from its worst slump since the Great Depression.
The yield has since fallen as much as 60 basis points, touching 3.28 percent on Sept. 2, amid speculation the six-month rally in stocks has outpaced prospects for economic growth.
The 10-year yield will climb to 3.76 percent at year-end, according to a Bloomberg survey of banks and securities firms, with the most recent forecasts given the heaviest weightings. Two-year yields will increase to 1.24 percent by year-end, according to the survey.
Spent, Lent, Committed
The economic crisis, which started with the collapse of the U.S. real estate market in 2007, triggered $1.61 trillion of writedowns and credit losses at financial institutions, sending the global economy into its first recession since World War II.
The U.S. government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets. Policy makers said Aug. 12 they would let a $300 billion program to buy long-term Treasuries expire in October, even as they pledged to keep interest rates “exceptionally low” for an extended period. The benchmark rate is a range of zero to 0.25 percent.
Yields indicate the Fed’s efforts are working. The London interbank offered rate, or Libor, for three-month loans between banks fell for a 13th straight day to 0.31 percent, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of bank reluctance to lend, narrowed 1 basis point to 15 basis points.
Geithner and European Central Bank President Jean-Claude Trichet are among Group of 20 finance officials gathering in London today who say it’s too soon to declare victory over the deepest recession since World War II. Policy makers are unwilling to curb spending or start unwinding their record low interest rates and debt purchases.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Cordell Eddings in New York at Ceddings@bloomberg.net.
