BLBG: Treasuries Little Changed as Stocks Fluctuate on Growth Outlook
Sept. 2 (Bloomberg) -- Treasuries were little changed as U.S. stocks swung between gains and losses and factory orders rose in July less than economists estimated.
Ten-year note yields touched their lowest levels in over seven weeks as ADP Employer Services said companies cut 298,000 jobs last month, more than the 250,000 median estimate of 32 economists surveyed by Bloomberg News. The Federal Reserve will today publish the minutes of its Aug. 12 meeting when the central bank signaled its $300 billion Treasury-purchase program will end in October.
“The market is centered on equities mostly,” said Kevin Giddis, head of fixed-income sales, trading and research at the brokerage Morgan Keegan Inc. in Memphis, Tennessee. “The price action in the bond market is telling us that it expects the economy to take its sweet time coming back. There is no sense of urgency to drive yields higher.”
The yield on the 10-year note fell one basis points, or 0.01 percentage point, to 3.35 percent at 10:55 a.m. in New York, according to BGCantor Market Data. The rate touched 3.322 percent, the lowest level since July 13. The 3.625 percent security due August 2019 rose 2/32, or 63 cents per $1,000 face amount, to 102 9/32.
The yield on the two-year note rose one basis points to 0.91 percent. It reached 0.88 percent, the least since July 21.
Factory Orders
Ten-year yields will climb to 3.76 percent at year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
U.S. stocks swung between gains and losses, with the Standard & Poor’s 500 Index rising as much as 0.2 percent and falling as much as 0.6 percent.
Factory orders rose 1.3 percent in July, the Commerce Department said, restrained by a decline in non-durable goods such as oil and food that masked a jump in demand for new equipment that was larger than previously estimated. Orders were forecast to rise 2.2 percent, according to the median of 63 estimates in a Bloomberg survey.
Today’s figures from ADP underscore the danger that consumer spending, which accounts for 70 percent of the economy, may be slow to gain traction in coming months. The report comes two days before a Labor Department release forecast to show the U.S. unemployment rate rose to 9.5 percent in August.
“We have benefited from weak stocks and increased risk aversion and yields coming down over the last few weeks,” said Lawrence Dyer, an interest-rate strategist in New York at HSBC Securities USA Inc., one of 18 primary dealers that trade with the Fed. “People are waiting to see the payroll numbers on Friday.”
‘Further Context’
The minutes of the Fed’s Aug. 12 meeting are due at 2 p.m. New York time. Ten-year Treasury yields rose to 3.71 percent just after that session, as policy makers kept their target rate in a range of zero to 0.25 percent and said they would “gradually slow” purchases of government securities.
The meeting minutes “will likely provide some further context to the decision to slow but not expand the Treasury buying program,” strategists at primary dealer Barclays Capital in London led by Adarsh Sinha wrote in a note to clients today. “In addition, there may be discussion around the completion of the agency mortgage-backed securities program.”
The central bank has acquired $276.371 billion in U.S. debt through the $300 billion purchase program, which began March 25. Two regional Fed bank chiefs said last week that the central bank may not need to buy the full $1.25 trillion in mortgage- backed securities it has authorized by year-end.
Credit Markets
Ten-year yields have risen 57 basis points since the Fed started injecting cash into the economy by buying bonds on March 25, a strategy known as quantitative easing. The MSCI World Index of shares gained 27 percent over the same period.
Yields in other parts of the credit market shows the Fed’s efforts have had some effect. The London interbank offered rate, or Libor, for three-month dollar loans fell to a record 0.33 percent yesterday, from 1.31 percent six months ago.
U.S. 30-year fixed mortgage rates declined to 5.26 percent yesterday from this year’s high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida.
Ten-year Treasury yields are cheap compared to similar securities from Canada, Germany, Japan and the U.K., and will move lower in the next few weeks, Chris Ahrens, head of interest-rate strategy, and analyst Jeana Curro at primary dealer UBS AG wrote in a note to clients.
‘Decent Relative Value’
“Lower yields are supported by seasonal factors, positive technicals, expected equity market retrenchment, benign inflation, and decent relative value as compared to other global markets,” the note said.
U.S. government securities returned 0.9 percent last month, on top of a 0.4 percent gain in July, according to Merrill Lynch’s U.S. Treasury Master Index.
By contrast, Japanese bonds rose 0.6 percent in August, while German securities climbed 0.4 percent, the Merrill indexes show.
Treasuries rallied yesterday as the Standard & Poor’s 500 Index lost 2.2 percent. MSCI’s Asia Pacific Index of shares slid 1.5 percent today, the biggest decline in two weeks.
“If stocks continue to fall, yields will fall further,” said Hidehiko Maejima, international bond strategist in Tokyo at BNP Paribas Securities Japan Ltd. The company’s U.S. branch is another primary dealer.
Investors should buy if 10-year yields rise past 3.45 percent, Maejima said.
To contact the reporters on this story: Cordell Eddings in New York at Ceddings@bloomberg.net.
