Government securities fell for a second consecutive week ahead of the Treasury’s scheduled offering of $82 billion of notes and bonds next week, including a record-tying $40 billion sale of three-year securities.
“The data supports the idea of a sustainable recovery going forward and yields should continue to head higher,” said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of 18 primary dealers required to bid at Treasury auctions. “We should break four percent on the 10-year soon.”
The 10-year note yield rose 7 basis points, or 0.07 percentage point, to 3.94 percent at 12:04 p.m. in New York, according to BGCantor Market Data. The yield increased 9 basis points on the week and is at the highest level since it reached 4 percent on June 11. The price of the 3.625 percent security due in February 2020 dropped 17/32, or $5.31 per $1,000 face amount, to 97 13/32.
Two-year note yields rose 4 basis points to 1.1 percent. Thirty-year bond yields increased to as high as 4.81 percent, also the highest since June.
U.S. employers added 162,000 jobs in March after a reduction of 14,000 positions in the previous month, the Labor Department reported today in Washington. The median forecast of 83 economists in a Bloomberg News survey was for an increase of 184,000. The unemployment rate was unchanged at 9.7 percent.
‘Accumulation of Information’
Futures on the CME Group Inc. exchange show a 60 percent chance that the Federal Reserve will increase the target rate for overnight lending between banks by at least a quarter- percentage point by November, compared with 45 percent odds a month ago.
“There will be an accumulation of information over time coupled with supply which could challenge the market and cause rates to probe higher levels,” said Chris Ahrens, head interest-rate strategist at UBS AG in Greenwich, Connecticut, a primary dealer. Treasuries also sold off due to “set up for next week’s supply,” he said.
Trading of Treasuries stopped at 12 p.m. in the U.S. for the observance of the Good Friday holiday on the recommendation of the Securities Industry and Financial Markets Association.
Inflation Expectations
Fed Bank of New York President William Dudley said yesterday the U.S. economic recovery may be “quite muted” and job growth is too slow, justifying low borrowing costs for a long period.
Inflation will probably stay very low as slack diminishes slowly in an economy that’s “qualitatively different from previous post-World War II business cycles,” Dudley said in a speech in Lexington, Virginia.
The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices, was 2.27 percentage points, compared with 2.41 percentage points at the beginning of the year.
Treasuries fell last week as lower-than-average demand at the government’s $118 billion in note auctions raised concern that investor interest is waning.
Next week’s $82 billion note and bond sales will include a record-tying $40 billion in three-year notes, $8 billion in 10- year Treasury Inflation Protected Securities, $21 billion in 10- year notes and $13 billion in 30-year bonds, the Treasury announced yesterday. The auctions will take place over four days starting with the TIPS sale on April 5.
“Bonds are cheapening up going into next week’s Treasury supply,” said George Goncalves, head of interest-rate strategy in New York at primary dealer Nomura Holdings Inc. “ All eyes and ears will be on the auction, especially after the last auction weakness. We’ve gotten to cheaper levels that should be attractive.”
