Treasury 10-Year Yields at Highest Since June After Jobs Report

Treasury 10-year note yields rose to the highest level since June after a government report showed the U.S. added the most jobs in three years last month, bolstering expectations the economic recovery is sustainable.

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.”

European Stocks Climb to 18-Month High; U.S. Index Futures Rise

European shares surged to an 18- month high and Asian stocks gained as manufacturing expanded in Europe, China and India. U.S. index futures rose before reports on jobless claims and manufacturing.

BHP Billiton Ltd., the world’s largest mining company, rallied 2.1 percent in London as metals prices climbed. Bayerische Motoren Werke AG increased 2.9 percent after the carmaker was upgraded at Credit Suisse Group AG. Clariant AG climbed 5.4 percent after Exane BNP Paribas recommended buying the shares.

The Stoxx Europe 600 Index rose 1.1 percent to 266.36 at 10:33 a.m. in London, the highest intraday level since Sept. 26, 2008. The measure climbed 3.8 percent in the first three months of 2010, a fourth straight quarter of gains, as the European Union agreed a contingency rescue package to help Greece cut Europe’s biggest budget deficit and the Federal reserve pledged to keep interest rates low for an extended period.

“The strength of the economic recovery was underestimated and the positive dynamic is still under way,” said Rudolf Buxtorf, who helps manage about $500 million at RBS Coutts Bank in Zurich. “It’s too early to be euphoric but the positives have moved to the foreground. There are few alternatives to equities.”

Fifth Weekly Gain

The Stoxx 600 is heading for a fifth straight weekly advance, the longest winning streak in almost a year. The gauge has surged 69 percent from a 12-year low in March 2009 amid signs the economy is recovering the deepest recession since World War II.

Europe’s manufacturing industry expanded at a faster pace than initially estimated in March, adding to signs that a euro- area recovery is gaining strength. A manufacturing index for the 16 nations that use the euro increased to 56.6 from 54.2 in February, London-based Markit Economics said. That’s above an initial estimate of 56.3 published on March 24 and the fastest pace since November 2006.

An index of U.K. manufacturing rose to 57.2 in March from 56.5 in February, the Chartered Institute of Purchasing and Supply and Markit said. That was the highest since October 1994.

The MSCI Asia Pacific Index gained 1.1 percent today. China’s manufacturing Purchasing Managers’ Index rose to a seasonally adjusted 55.1 last month from 52 in February, according to Li & Fung Group. India’s manufacturing grew for a 12th straight month in March, according to HSBC Holdings Plc and Markit Economics.

Japanese Tankan

The Tankan index of sentiment among Japan’s largest manufacturers rose to minus 14 in March from minus 25 in December, the least pessimistic since 2008, according to the Bank of Japan.

Futures on the Standard & Poor’s 500 Index expiring in June advanced 0.5 percent.

A report at 10 a.m. New York time may show U.S. manufacturing grew at a faster pace in March, keeping factories at the forefront of the recovery. The Institute for Supply Management’s factory index rose to 57 from 56.5, according to the median estimate in a Bloomberg News survey of 77 economists. Readings greater than 50 signal expansion. Another report at the same time may show construction dropped.

Data from the Labor Department, due at 8:30 a.m. New York time, may show initial jobless claims fell by 2,000 last week to a seven-week low of 440,000. A separate report tomorrow is forecast to show U.S. payrolls rose by 190,000 in March, the biggest gain in three years, according to the median estimate of 62 economists surveyed by Bloomberg News.

Mining Companies

BHP Billiton rose 2.1 percent to 2,308 pence as copper climbed in London, leading a measure of mining companies to the biggest gain among 19 industry groups in the Stoxx 600. Rio Tinto Group, the world’s third-largest mining company, advanced 2.8 percent to 4,015 pence. Xstrata Plc, the biggest producer of coal for power stations, climbed 2.8 percent to 1,283.5 pence.

BMW rallied 2.9 percent to 35.17 euros. The world’s biggest maker of luxury cars was raised to “outperform” from “underperform” at Credit Suisse, which cited a “positive” pricing strategy.

Clariant advanced 5.4 percent to 14.14 Swiss francs. Exane reiterated its “outperform” rating on the shares before the world’s biggest maker of printing-ink chemicals reports better- than-estimated first-quarter profit this month.

Petroplus Holdings AG, Europe’s biggest independent refiner by capacity, surged 4.9 percent to 20.55 francs amid speculation oil-refining profits will recover further.

“We see average first quarter 2010 European margins back up to levels at least comparable with the second and third quarter 2009,” London-based broker Collins Stewart said in a note.

Richemont Rises

Cie. Financiere Richemont SA advanced 1.9 percent to 41.59 francs. The world’s largest jewelry maker agreed to buy the remainder of Net-a-Porter LLC, valuing the online fashion retailer at 350 million pounds ($533 million).

Mergers and acquisitions gained momentum in the first quarter with more than 2,034 cross-border transactions and 10 hostile takeovers signaling a recovery from the worst deal market in six years, according to data compiled by Bloomberg.

Orion Oyj sank 12 percent to 14.47 euros for the biggest drop in the Stoxx 600. Stalevo, a drug for Parkinson’s Disease from the Finnish maker of treatments for nervous-system disorders and Novartis AG, may be linked to an increase risk of prostate cancer, the U.S. Food and Drug Administration said.

Michelin & Cie. declined 1.8 percent to 53.59 euros. The world’s second-biggest tiremaker was downgraded to “hold” from “buy” at Deutsche Bank AG.

Asian Stocks Gain as China, South Korea Data Fuel Growth Hopes

Asian stocks rose, lifting the MSCI Asia Pacific Index for the fourth time in five days, as growth in Chinese manufacturing and surging South Korean exports bolstered confidence in the global economic recovery.

Datong Coal Industry Co. increased 3.1 percent in Shanghai as an index of the country’s manufacturing industry rose in March. Samsung Electronics Co., which generates more than 80 percent of its revenue outside South Korea, gained 3.3 percent after a government exports report beat economist estimates. Dai- ichi Life Insurance Co. surged 14 percent on its first day of trading. Lihir Gold Ltd. soared 33 percent in Sydney after rejecting a bid from Australia’s largest gold producer.

The MSCI Asia Pacific Index increased 1 percent to 126.38 as of 5:26 p.m. in Tokyo. The gauge has climbed 11 percent from a more-than-two-month low on Feb. 8 as improving U.S. jobs data, a Federal Reserve pledge to keep borrowing costs low and a Japanese bank-lending program eased concern that budget deficits in Europe will derail the revival in the global economy.

“The data will remain supportive even for the second quarter of this calendar year,” said Prasad Patkar, who helps oversee about $1.8 billion at Platypus Asset Management in Sydney. “The more skeptical view or concerns are in the second half of this year where the underlying economic activity will be a bit more exposed, rather than the stimulus-induced activity which the skeptics believe is what we’re seeing today.”

The Nikkei 225 Stock Average rose 1.4 percent in Japan, where a government report showed confidence among the country’s largest manufacturers advanced for a fourth-straight quarter.

Regional Indexes

China’s Shanghai Composite Index climbed 1.2 percent. Hong Kong’s Hang Seng Index gained 1.4 percent, with Cheung Kong (Holdings) Ltd. pacing gains among property developers on rising home sales.

South Korea’s Kospi Index rose 1.6 percent to the highest level since Jan. 21. India’s Sensitive Index gained 0.7 percent after a report from HSBC Holdings Plc and Markit Economics showed manufacturing grew for a 12th straight month in March.

Futures on the Standard & Poor’s 500 Index increased 0.5 percent. The gauge decreased 0.3 percent yesterday as private reports showed employers unexpectedly cut jobs this month and business activity grew less than forecast.

In Shanghai, Datong Coal, China’s third-largest coal company by capacity, rose 3.1 percent to 37.98 yuan. Baoshan Iron & Steel Co., the nation’s biggest steelmaker, added 1.5 percent to 8 yuan.

Higher Offer

China’s Purchasing Managers’ Index rose to a seasonally adjusted 55.1 from 52 in February, according to Li & Fung Group, a Hong Kong-based company that releases data for the Federation of Logistics and Purchasing. The figure was in line with the median estimate in a Bloomberg News survey of 13 economists. Readings above 50 indicate expansion.

Henan Yinge Industrial Investment Holding Co. jumped 3.7 percent to 10.16 yuan, pacing gains among paper manufacturers on speculation a stronger economy will push the government to allow currency gains, benefitting raw-material importers.

“The economy is in a good shape and growth is still gaining momentum,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “We are definitely in a growth cycle.”

The MSCI Asia Pacific Index climbed 3.9 percent last quarter, compared with 2.7 percent for the MSCI World Index, as economic data improved. The Asian gauge’s increase was its fourth-straight quarterly advance, lifting the average price of companies to 1.6 times corporate net worth, the highest level since September 2008.

South Korean Exports

Japan’s Tankan index of business sentiment rose to minus 14 in March from minus 25 in December, the fourth-straight gain, the Bank of Japan said today in Tokyo. South Korea’s government said today that overseas shipments advanced 35.1 percent in March from a year earlier, more than the 31.7 percent economists in a Bloomberg News survey estimated.

In Seoul, Samsung Electronics, Asia’s biggest maker of chips, flat screens and mobile phones, climbed 3.3 percent to 845,000 won, the leading mover on the MSCI Asia Pacific Index. Hyundai Motor Co., South Korea’s largest automaker, rose 4.8 percent to 121,000 won after reporting a 36 percent increase in monthly sales.

Commodity-related shares gained after oil and metals prices climbed yesterday. Crude-oil futures surged 1.7 percent to $83.76 a barrel yesterday in New York. The London Metals Index, a measure of six metals including copper and zinc, gained for the fifth day yesterday.

Commodity Prices

Mitsubishi Corp., which gets about 40 percent of sales from commodities, increased 1.5 percent to 2,487 yen. BHP Billiton Ltd., the world’s largest mining company, rose 0.8 percent to A$43.95. Rio Tinto Group, the world’s third-largest mining company, advanced 1.5 percent to A$79.60.

“A gain in commodity prices is showing strong business confidence,” said Mitsushige Akino, who oversees the equivalent of $450 million in Tokyo at Ichiyoshi Investment Management Co.

Lihir, the second-largest gold mining company on the Australian stock exchange, surged 33 percent to A$4.04. The company said a A$9.2 billion ($8.4 billion) cash and stock takeover from Newcrest Mining Ltd. was inadequate. Newcrest gained 2.9 percent to A$33.78.

CSR Ltd., Australia’s second-largest building products maker, jumped 6 percent to A$1.755. Bright Food Group Co., Shanghai’s biggest food company, raised its offer for CSR’s sugar unit to A$1.75 billion after the Australian company’s plan to spin off the division was blocked on asbestos concerns.

Dai-ichi Life

In Tokyo, Dai-ichi Life, Japan’s No. 2 life insurer, rose 14 percent to 160,000 yen from its initial offering price of 140,000 yen. Trading was halted as soon as the initial price was set.

Dai-ichi’s $11 billion IPO is the world’s largest since San Francisco-based Visa Inc. sold $19.7 billion of shares in March 2008. The stock was the most traded by volume on the Tokyo Stock Exchange’s first section, according to data compiled by Bloomberg.

“The fact that it opened at 160,000 means that investors are quite bullish,” said Curtis Freeze, chairman of Honolulu- based Prospect Asset Management Inc., which has $1 billion of assets. “The market’s reaction is positive, thanks to this pricing because that means there’s a lot of pent up demand for Japanese stocks.”

Shipping stocks advanced after the Baltic Dry Index rose for the first time since March 15, snapping its worst losing streak of the year, on demand to ship Australian iron ore to China. The index gained 0.5 percent yesterday, according to the Baltic Exchange.

Kawasaki Kisen Kaisha Ltd., Japan’s third-biggest shipping line, climbed 2.4 percent to 382 yen. STX Pan Ocean Co., South Korea’s biggest bulk carrier, rose 4.1 percent to 13,950 won. Korea Line Corp., the second-biggest, gained 2.5 percent to 64,600 won.

In Hong Kong, Cheung Kong advanced 2.5 percent to HK$102.50 after Centaline Property Agency Ltd. said existing home sales in the city rose 59 percent last month from February. New World Development, controlled by billionaire Cheng Yu-tung, gained 1.2 percent to HK$15.28.

Yen Tumbles as Global Recovery Signs Reduce Demand for Refuge

The yen touched an eight-week low versus the euro as signs the global economic recovery is gathering steam damped demand for Japan’s currency as a refuge.

The Japanese currency headed for its biggest monthly drop in a year versus the euro before a report tomorrow that may indicate confidence among Japan’s large manufacturers increased, boosting appetite for investments in countries with higher long- term interest rates. The franc climbed to a record against the euro as Swiss leading economic indicators rose in March to the highest level since November 2007.

“There’s a tremendous amount of pressure to push the yen lower in the next few days,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “The market is expecting Japanese institutional investors to be chasing steepness in yield curves globally in relatively safe places.”

The yen depreciated 1.6 percent to 126.40 per euro at 2:01 p.m. in New York, from 124.44 yesterday, after touching 126.56, the weakest level since Feb. 3. It dropped 0.7 percent to 93.39 per dollar, from 92.76, after reaching 93.63, the weakest since Jan. 8. The euro climbed 0.9 percent to $1.3533, from $1.3414.

U.S. 10-year note yields have climbed 63 basis points, or 0.63 percentage point, to 3.82 percent since the end of November. Yields on comparable Japanese securities rose 14 basis points to 1.395 percent.

The Swiss franc gained as much as 0.7 percent to 1.4209 per euro, the strongest since the 16-nation currency’s 1999 debut, before trading at 1.4231, up 0.5 percent. It strengthened 4.2 percent for the quarter.

Monthly Loss

The Japanese currency was poised for a 4.2 percent loss versus the euro this month, the biggest since it tumbled 5.7 percent in March 2009. The yen headed for a 4.8 percent drop against the greenback, its biggest monthly decline this year.

The losses accelerated in New York trading as Japan’s fiscal year ended today, encouraging traders to place fresh bets on yen weakness on speculation Japanese companies had finished sending earnings back home. The yen fell the most this month against the euro among 16 major counterparts, exceeding the 0.3 percent drop of the Swedish krona, the second-worst performer, by more than 10 times.

“The fear was that heading into this fiscal year-end there would have be a significant potential for a pickup in repatriation of earnings back to Japan,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “If those flows have materialized, it’s had very little supportive impact on the yen.”

Yen Outlook

Japan’s currency will probably fall 2.7 percent to 96 versus the dollar in the next six months as the Bank of Japan continues stimulating the economy, Hardman predicted. The Federal Reserve said on March 16 it would stop purchasing mortgage debt this month.

The yen briefly pared losses against the dollar and euro earlier today after a report showed companies in the U.S. unexpectedly cut payrolls in March. The 23,000-position decline shown by data from ADP Employer Services compared with a gain of 40,000 forecast in a Bloomberg News survey.

Today’s advance by the euro reduced its loss against the dollar in the first quarter to 5.5 percent. The drop, on concern Greece’s debt crisis will derail the region’s economic recovery, would still be the worst performance since an 11 percent decrease in the three months ended September 2008.

U.S. Rate Bets

Futures on the CME Group Inc. exchange showed a 56 percent chance the Fed will raise its target rate for overnight lending between banks by at least a quarter-percentage point by its November meeting, compared with 48 percent odds a month ago. The central bank has kept the target interest rate in a range of zero to 0.25 percent since December 2008.

The U.S. Labor Department’s nonfarm jobs report on April 2 is forecast to show employers added 184,000 positions, the most in three years, a Bloomberg survey of 81 economists shows.

Australia’s dollar fell for the first time in three days, dropping as much as 0.7 percent to 91.31 U.S. cents. The Bureau of Statistics said the nation’s retail sales tumbled 1.4 percent in February. Economists in a Bloomberg News survey forecast a 0.3 percent increase.

“That was a very awful set of retail sales numbers with broad-based losses,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong.

The Aussie has climbed 2.3 percent against the greenback this quarter after Reserve Bank of Australia Governor Glenn Stevens raised the benchmark cash target in March to 4 percent.

The U.S. dollar’s share of global currency reserves rose to 62.1 percent in the fourth quarter of 2009, and the euro’s share dropped to 27.4 percent, the International Monetary Fund said today in a quarterly report.

The yen’s share dropped to 3 percent from 3.2 percent and the British pound held at 4.3 percent in the period ended Dec. 31, the Washington-based fund said.