BLBG: Treasury 30-Year Yield Near 1-Week High Before Services Report
By Wes Goodman
Feb. 3 (Bloomberg) -- Treasury 30-year yields were near the highest level in a week before a private report economists said will show U.S. service industries grew by the most in 20 months.
The Labor Department will say on Feb. 5 that the nation added jobs in January for just the second time in two years, according to a Bloomberg News survey of economists, raising speculation the figure will erode demand at three Treasury auctions next week. The U.S. is scheduled to announce today the sizes of the three-, 10- and 30-year sales.
“Market risk seems to be increasing,” said Tsutomu Komiya, who handles U.S. government debt in Tokyo at Daiwa Asset Management Co., which has $77 billion in assets. “The rapid growth rate in the U.S. economy won’t continue, but it’ll keep growing steadily.”
The 30-year bond yielded 4.57 percent as of 6:36 a.m. in London, according to data compiled by Bloomberg. The 4.375 percent security due in November 2039 traded at 96 27/32. The yield climbed to 4.59 percent on Jan. 28.
Benchmark 10-year yields were little changed at 3.65 percent. They will rise to 4.13 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
An increase in yield would mark a shift from January, when investors sought the relative safety of Treasuries as stocks fell. U.S. government securities returned 1.6 percent last month, according to Bank of America Corp.’s Merrill Lynch unit. The Standard & Poor’s 500 Index fell 3.7 percent, the most since February 2009, Bloomberg data show.
Wrongly Priced
Mohamed A. El-Erian, whose company runs the world’s biggest mutual fund, said the stock market decline may worsen amid persistent U.S. joblessness and economic growth that trails analysts’ forecasts.
Investors have wrongly priced in an “orderly” withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, the chief executive officer of Pacific Investment Management Co. wrote in a Bloomberg News column.
Treasuries indicate traders are adding to bets that inflation will quicken as the economy revives.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of trader expectations for consumer prices, widened to 2.40 percentage points from 2.06 percentage points three months ago.
The Institute for Supply Management’s index of non- manufacturing companies, which comprise almost 90 percent of the economy, rose to 51 in January, the most since May 2008, a Bloomberg News survey of economists shows. ADP Employer Services will say U.S. companies last month cut the fewest jobs in two years, a separate survey indicated. Both reports are due for release today.
Three Auctions
The Treasury Department will announce today plans to sell a record-tying $40 billion in three-year notes, $25 billion of 10- year debt and $16 billion in 30-year bonds next week, based on the average forecasts of eight bond-trading companies. The sales will be held over three days starting Feb. 9.
The U.S. is also scheduled to release details of discussions with its debt advisory group, after bond dealers underwriting the sales told officials that an increase in direct bids from investors at auctions risks distorting prices.
President Barack Obama has increased the U.S. marketable debt to a record $7.27 trillion as he tries to sustain the economic recovery from last year’s recession. He projects the U.S. budget deficit will rise to a record $1.6 trillion.
Aaa Under Pressure
U.S. economic growth will slow to 2.7 percent in the first quarter of 2010 from 5.7 percent in the final three months of last year, Bloomberg surveys of economists show.
Moody’s Investors Service Inc. said the U.S. government’s Aaa bond rating will come under pressure unless measures are taken to reduce budget deficits projected for the next decade.
The ratios of government debt to U.S. gross domestic product and revenue have increased “sharply” during the credit crisis and recession, and Moody’s expects them to remain higher compared with other Aaa-rated countries, the New York-based ratings company said yesterday.
The financial crisis that started with the collapse of the U.S. property market in 2007 has triggered $1.74 trillion of writedowns and credit losses at financial institutions, according to data compiled by Bloomberg.
Treasury 10-year yields were near the middle of the range they’ve been in since May before the government’s Feb. 5 employment report. U.S. payrolls rose by 10,000 in January, according to the Bloomberg survey. Employers added 4,000 jobs in November, the first increase since December 2007.
Merrill Lynch’s MOVE Index, an options-based gauge for price swings, fell to 83.7, the lowest level since Nov. 25, the day before the U.S. Thanksgiving holiday. The last time it was lower before that was October 2007.
“It’s really a tough position for a real money manager to be in to put money to work ahead of nonfarm payrolls,” said Christian Cooper, an interest-rate strategist at Royal Bank of Canada in New York, one of 18 primary dealers that are required to bid at Treasury auctions.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
