The 10-year note’s yield dropped from almost the highest level since June on evidence the recovery in the labor market will be slow. The government’s payrolls report on April 2 is forecast to show employers added the most jobs since March 2007.
“We are rallying on the back of the release,” said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of 18 primary dealers that trade directly with the Federal Reserve. “Investors expected a strong employment number at the end of the week and were looking to ADP as the leading indicator.”
The 10-year note’s yield fell 3 basis points, or 0.03 percentage point, to 3.83 percent at 2:19 p.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security due in February 2020 increased 1/4, or $2.50 per $1,000 face amount, to 98 11/32. The yield touched 3.92 percent on March 25, the highest level since June 11.
Companies cut an estimated 23,000 jobs this month after eliminating 24,000 in February, ADP Employer Services reported. The median forecast of 35 economists in a Bloomberg News survey was for an increase of 40,000 positions.
“A weak ADP caught people by surprise,” said Brian Edmonds, head of interest rates at the primary dealer Cantor Fitzgerald LP in New York. “To have it that weak is eye-opening for the market and for the nonfarm payrolls number on Friday.”
Jefferies View
Investors should sell 10-year notes at yields from 3.77 percent to 3.805 percent, John Spinello, chief technical strategist in New York at the primary dealer Jefferies Group Inc., wrote in a research note today. The market may see a rally if the nonfarm payrolls number is weaker than anticipated, Spinello said in an interview.
The Labor Department will report that employers added 184,000 jobs, according to the median forecast of 81 economists in a Bloomberg survey. The jobless rate probably held at 9.7 percent, according to analysts.
Treasuries have returned 0.9 percent for investors in the first quarter as of yesterday, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit. They have lost 1.1 percent this month.
Atlanta Fed President Dennis Lockhart said he would like to see evidence of recovery in the job market before he supports an increase in the benchmark interest rate from a record low.
‘Looking for Signs’
“I will be looking for signs that employment gains are likely to repeat, accumulate and, once achieved, are likely to be durable,” Lockhart said today in a speech in Hartford, Connecticut. “It is premature to assume an imminent reversal of the Fed’s accommodative policy.”
Interest-rate futures on the CME Group Inc. exchange showed a 44 percent chance that U.S. policy makers will raise the fed funds target by at least a quarter-percentage point by September, compared with 47 percent odds yesterday.
The Fed has kept its target rate for overnight lending in a range of zero to 0.25 percent since December 2008. The central bank is ending today its purchases of $1.25 trillion of mortgage securities and $172 billion of agency debt. It ceased buying Treasuries in October after acquiring $300 billion.
Treasury 10-year note yields have increased 22 basis points this month in the biggest advance since December on speculation the central bank will begin to raise interest rates while the administration of President Barack Obama tries to sustain economic growth with record borrowing.
U.S. Budget Deficit
The budget deficit, which rose to $1.4 trillion in fiscal 2009, will drive Treasury sales to a record $2.43 trillion this year, a February survey of bond-trading companies showed.
Dallas Fed President Richard Fisher said yesterday in Tucson, Arizona, that the U.S. can’t “turn a blind eye” to the effect that the growing federal deficit is having on Treasury yields and the outlook of investors.
The Treasury is scheduled to announce tomorrow it will sell $40 billion in 3-year notes, $21 billion in 10-year notes, $13 billion in 30-year bonds and $8.2 billion in 10-year Treasury Inflation Protected Securities in auctions next week, according to the average forecast of nine primary dealers surveyed by Bloomberg News. The auctions begin April 5.
Treasury 10-year note yields rose last week the most since December as lower-than-average demand at $118 billion in note auctions raised concern that investor interest is waning.
“While the bull market in bonds may have run its course, I would be surprised to see it listed in the obituary section in the newspapers,” Kevin Giddis, head of fixed-income sales, trading and research at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients. “The rest of the world is not secure, and the likelihood of another debt crisis is high.”
