BLBG: Treasuries Little Changed After ADP Employer Services Report
By Cordell Eddings and Anna Rascouet
Dec. 2 (Bloomberg) -- Treasuries were little changed after an industry report showed the U.S. lost an estimated 169,000 jobs in November, the smallest drop since July 2008.
Yields on 10-year notes held near the highest levels in a week after the report from ADP Employer Services. The figures were forecast to show a decline of 150,000 jobs, according to the median estimate in a Bloomberg survey. The U.S. plans to announce tomorrow the sizes of three-, 10- and 30-year auctions set for next week, following record sales last week.
“The number is worse than the market expected, but the trend is improving,” said Alex Li, an interest-rate strategist in New York at Credit Suisse AG, one of the 18 primary dealers required to bid at Treasury auctions. “People are more anxiously looking for the payroll report on Friday. What ADP tells you is that the employment situation is moving toward the right direction but it will still take a while to move from negative to positive.”
The yield on the 10-year note traded at 3.29 percent at 8:37 a.m. in New York. The yield touched 3.30 percent, he highest level since Nov. 25. The 3.375 percent security maturing in November 2019 was at 100 23/32.
Labor Department figures on Dec. 4 will show the U.S. economy lost 123,000 workers this month, the least since March 2008, according to a Bloomberg survey.
Economic Recovery
An economic recovery in the U.S. is leading investors to seek higher yields in stocks and corporate bonds, allowing Xerox Corp., the largest maker of high-speed color printers, to sell $2 billion of debt yesterday.
Philadelphia Federal Reserve Bank President Charles Plosser said the central bank should increase its main interest rate in the future in line with market rates, which will rise with the strengthening of the U.S. economy.
The economy will expand “about 3 percent” from the fourth quarter of this year to the fourth quarter of 2010, and at a “similar” pace in 2011, Plosser told business leaders yesterday in Rochester, New York. Such growth is faster than the economy’s underlying trend of 2.75 percent, which means investors will push market interest rates up to compensate for the risks of higher inflation, he said.
Two-year notes, among the most sensitive to what the Fed does with borrowing costs, yielded as little as 0.66 percent today, within 6 basis points of a record low, on speculation the central bank will keep interest rates near zero through the middle of next year.
‘Positive Factor’
That left the difference, or spread, between two- and 10- year yields at 262 basis points, compared with 226 basis points two months ago.
“The Fed will keep the rate at the current low level,” said Tsutomu Komiya, an investment manager in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $77 billion. “This is the big positive factor” for Treasuries.
Central bank statements on Nov. 4 and Nov. 24 repeated the Fed’s view that it would keep the rate “for an extended period.” It cut its target to a range of zero to 0.25 percent in December of last year.
“It just tells me there’s a huge amount of cash that’s looking for any sort of yield,” said Joel Levington, director of corporate credit research at Brookfield Investment Management Inc. in New York.
Debt Issuance
Issuance of non-financial corporate debt in 2009 has totaled a record $385 billion through September, up 53 percent from the year earlier, the report said, citing data from the Federal Reserve.
U.S. 10-year yields will rise to 3.75 percent by Dec. 31, according to Deutsche Bank AG, one of the 18 primary dealers that are required to bid at the government’s debt sales.
An index of U.S. corporate bonds compiled by Bank of America Merrill Lynch yields 3.28 percentage points more than Treasuries, narrowing from 8.04 percentage points at the end of last year.
The spread is still wider than at the end of 2006, when it was 1.41 percentage points, before the collapse of the U.S. property market the next year sent corporate bond yields surging.
The index returned almost 26 percent this year, while Treasuries have fallen 1.4 percent, the Merrill figures show.
By comparison, government bonds have returned 2.9 percent in Germany and 1.2 percent in Japan.
Treasuries fell yesterday after government-related Dubai World said it began talks with banks to restructure $26 billion of debt. The holding company is seeking to delay payments on less than half its $59 billion of obligations. Its attempt to reach a so-called standstill agreement roiled markets last week, spurring demand for the relative safety of government debt.
The U.S. is scheduled to announce tomorrow how much it plans to raise by selling three-year notes on Dec. 8, 10-year notes on Dec. 9 and 30-year bonds on Dec. 10.
Wrightson ICAP LLC in Jersey City, an economic advisory firm specializing in government finance, predicts the package will total $74 billion. The government raised $81 billion the last time it sold this combination of securities in November.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Anna Rascouet in London at arascouet@bloomberg.net.
