Treasuries dropped after a report showed the U.S. unemployment rate fell to a six-year low and more jobs than forecast were added, boosting speculation that the Federal Reserve will boost interest rates next year.
The difference between yields on five- and 30-year debt narrowed to almost a five-year low as longer-term securities benefit from a subdued inflation outlook. Yields on benchmark 10-year notes rose after the Labor Department said the U.S. added 248,000 jobs in September, compared with a forecast for a 215,000 increase in a Bloomberg News survey. The jobless rate fell to 5.9 percent from 6.1 percent.
“The Fed has to feel we’re making progress and it’s time for them to consider tightening,” said Richard Schlanger, who helps invest $30 billion in fixed-income securities as vice president at Pioneer Investments in Boston. “The market doesn’t seem to be concerned about inflation.”
The U.S. 10-year (USGG10YR) note yield, a benchmark for global borrowing costs, rose three basis points, or 0.03 percentage point, to 2.45 percent at 11:26 a.m. New York time, according to Bloomberg Bond Trader data. The 3.375 percent securities maturing in August 2024 dropped 1/4, or $2.50 per $1,000 face amount, to 99 10/32.
Yield Difference
The difference between the yields on five-year notes and 30-year bonds, the yield curve, narrowed to 1.40 percentage points, almost the least since 2009. The curve usually steepens as the economy heats up as investors anticipating faster growth and inflation.
“The five-year note sector is getting hit, but we haven’t seen the curve steepen, and that’s interesting,” said Donald Ellenberger, who oversees about $10 billion as head of multi-sector strategies at Federated Investors in Pittsburgh. “The market believes the Fed will keep a lid on long rates, even as they increase the probability of a sooner tightening.” Treasuries were set for a third weekly gain as the European Central Bank yesterday kept interest rates unchanged at record lows and announced plans to start buying covered bonds this month.
The ECB’s Governing Council left the main refinancing rate at 0.05 percent at its meeting yesterday in Naples, Italy. The decision was predicted by all 60 economists in a Bloomberg News survey. The deposit rate and the marginal lending rate remained at minus 0.2 percent and 0.3 percent, respectively.
Foreign Comparison
U.S. 10-year notes yielded 1.53 percentage points more than their German counterparts after reaching 1.57 on Sept. 17, the most since June 1999.
“That’s a sign that U.S. economic fundamentals are not the key driver of rates right now,” said Michael Cloherty, head of U.S. rates strategy at Royal Bank of Canada’s RBC Capital Markets unit in New York. “What’s going on overseas, and its knock on impacts, have taken a greater role.”
With the U.S. adding jobs at a pace of 227,000 per month this year, the fastest employment growth since 1999, without spurring enough inflation to meet the Fed’s 2 percent target for the personal consumption expenditures deflator, investors and strategists are turning more of their focus to secondary measures of the strength of the labor market.
“We’re not getting a lot of inflation in terms of wages along with increases in employment,” said Dan Heckman, a senior fixed-income strategist at U.S. Bank Wealth Management, which oversees $120 billion. The drop in unemployment below 6 percent means “a lot of analysts will be looking at the first fed funds rate increase coming in the first quarter more so than the second half,” he said.
Price Levels
The last time consumer-price increases were slowing before the Fed started increasing borrowing costs was in 1994 -- when Treasuries lost 3.3 percent in what was then the biggest selloff on record. At the time, Fed Chairman Alan Greenspan shocked the financial world by doubling the benchmark rate to 6 percent, even though inflation was at a seven-year low of 2.5 percent.
The Fed’s measure of five-year inflation expectations five-years in the future, known as the five-year five-year forward breakeven rate, was 2.17 percent on Sept. 29, down from 2.69 percent at the end of last year and the lowest in three years.
“One thing investors are targeting is there’s very little inflation in the system,” said Thomas di Galoma, head of fixed income rates at ED&F Man Capital Markets in New York. “There’s still a big deflationary trend that continues throughout the world.” Traders anticipate the Fed will start boosting short-term rates in September and lift them to about 0.75 percent by the end of 2015, futures trading shows. Fed officials raised their median rate forecast this month by a quarter-percentage point to 1.375 percent for the end of 2015.
Ten-year yields will rise to 2.78 percent by Dec. 31, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
German Bonds Decline the Most in Two Weeks on ECB Disappointment
German bonds fell, pushing 10-year (GSPG10YR) yields up the most in two weeks, as investors reassessed prospects for additional European Central Bank easing measures after it gave only outlines of a plan to buy private securities.
Bunds extended their decline after data showed U.S. employers added more jobs in September than analysts forecast. Spanish bonds were little changed after ECB President Mario Draghi yesterday failed to provide details on the size of its purchases of asset-backed securities and covered bonds. A report showed euro-region retail sales growth in August beat economist estimates, damping demand for the safest assets.
“The ECB meeting disappointed investors with a de-emphasis on expanding its balance sheet and few hints of further ECB action to stem rising deflation pressures,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The ECB looks set to adopt a wait-and-see stance but eventually will introduce QE,” he said, referring to buying sovereign bonds, or quantitative easing.
Germany’s 10-year yield climbed three basis points, or 0.03 percentage point, to 0.93 percent at 4:37 p.m. London time. The 1 percent bund due in August 2024 fell 0.24, or 2.40 euros per 1,000-euro ($1,254) face amount, to 100.675.
Focusing on plans to buy private debt as soon as this month to buoy euro-area inflation that’s the weakest in five years, Draghi yesterday left the option of purchasing government bonds in his toolbox. He also backpedaled on indications that he could boost the central bank’s balance sheet by as much as 1 trillion euros.
Draghi’s Reluctance
Draghi’s reluctance to spell out how many assets officials might buy disappointed investors pushing him to go all-in. With the outlook for consumer prices worsening and the 18-nation economy closer to renewed recession, they’re pressuring him to honor his pledge to take further action if needed.
The five-year, five-year forward inflation swap rate, a gauge of price-growth expectations in the euro area, dropped three basis points to 1.9 percent, the lowest level since Bloomberg began collecting the data in 2004.
The ECB will have to deliver a larger and broader asset-purchase program that includes government bonds next year as growth and inflation may continue to disappoint, HSBC Holdings Plc economist Janet Henry wrote in a client note dated yesterday. Goldman Sachs Group Inc. put the odds of a bond-based QE program at 30 percent, Frankfurt-based economist Dirk Schumacher wrote in a note dated yesterday.
Spanish Bonds
The rate on 10-year Spanish bonds was at 2.11 percent after advancing four basis points yesterday.
The U.S. jobless rate declined to a six-year low of 5.9 percent in September and employers added 248,000 jobs, following a 180,000 August increase that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.
Retail sales in the region rose 1.2 percent in August, compared with the median estimate of 0.1 percent among economists in a Bloomberg News survey.
Portuguese and Greek bonds climbed after Draghi said the ECB was prepared to buy ABS from nations rated below investment grade. France’s Christian Noyer joined policy makers from Germany and Austria in opposing a program to buy asset-backed securities, according to two euro-area officials.
Greek 10-year yields fell 12 basis points to 6.35 percent after dropping 16 basis points in the previous two days. The rate is still about 19 basis points higher this week. The yield on similar-maturity Portuguese bonds fell two basis points to 3.05 percent. German government securities returned 7.6 percent this year through yesterday, Bloomberg World Bond Indexes show. Spain’s earned 14 percent, and Greece’s 23 percent.
Bank of Japan Buys Record 3.5 Trillion Yen in Treasury Bills
The Bank of Japan purchased a record 3.5 trillion yen ($32 billion) in treasury bills today as the central bank pushes forward with unprecedented monetary easing to reach its 2 percent inflation target. The amount exceeded the previous records of 3 trillion yen on Aug. 22 and Aug. 1. The BOJ also scooped up 530 billion yen in government bonds from the market today as part of its 7 trillion yen in monthly debt buying, which has drained the availability of sovereign bills and bonds for investors.
“That was a big treasury bill operation,” said Toshiaki Terada, a researcher at Totan Research Co., a money-market brokerage in Tokyo. “The banks were wanting to sell, so that’s probably why the BOJ increased its buying.”
Japan’s three-month treasury bills traded with yields at minus 0.02 percent as of 10:23 a.m. in Tokyo, while the one-year bill yield was at negative 0.005 percent, according to Japan Bond Trading Co. The two-year note yield fell half a basis point to 0.06 percent, the lowest since Sept. 26. A basis point is 0.01 percentage point.
source: Bloomberg
The difference between yields on five- and 30-year debt narrowed to almost a five-year low as longer-term securities benefit from a subdued inflation outlook. Yields on benchmark 10-year notes rose after the Labor Department said the U.S. added 248,000 jobs in September, compared with a forecast for a 215,000 increase in a Bloomberg News survey. The jobless rate fell to 5.9 percent from 6.1 percent.
“The Fed has to feel we’re making progress and it’s time for them to consider tightening,” said Richard Schlanger, who helps invest $30 billion in fixed-income securities as vice president at Pioneer Investments in Boston. “The market doesn’t seem to be concerned about inflation.”
The U.S. 10-year (USGG10YR) note yield, a benchmark for global borrowing costs, rose three basis points, or 0.03 percentage point, to 2.45 percent at 11:26 a.m. New York time, according to Bloomberg Bond Trader data. The 3.375 percent securities maturing in August 2024 dropped 1/4, or $2.50 per $1,000 face amount, to 99 10/32.
Yield Difference
The difference between the yields on five-year notes and 30-year bonds, the yield curve, narrowed to 1.40 percentage points, almost the least since 2009. The curve usually steepens as the economy heats up as investors anticipating faster growth and inflation.
“The five-year note sector is getting hit, but we haven’t seen the curve steepen, and that’s interesting,” said Donald Ellenberger, who oversees about $10 billion as head of multi-sector strategies at Federated Investors in Pittsburgh. “The market believes the Fed will keep a lid on long rates, even as they increase the probability of a sooner tightening.” Treasuries were set for a third weekly gain as the European Central Bank yesterday kept interest rates unchanged at record lows and announced plans to start buying covered bonds this month.
The ECB’s Governing Council left the main refinancing rate at 0.05 percent at its meeting yesterday in Naples, Italy. The decision was predicted by all 60 economists in a Bloomberg News survey. The deposit rate and the marginal lending rate remained at minus 0.2 percent and 0.3 percent, respectively.
Foreign Comparison
U.S. 10-year notes yielded 1.53 percentage points more than their German counterparts after reaching 1.57 on Sept. 17, the most since June 1999.
“That’s a sign that U.S. economic fundamentals are not the key driver of rates right now,” said Michael Cloherty, head of U.S. rates strategy at Royal Bank of Canada’s RBC Capital Markets unit in New York. “What’s going on overseas, and its knock on impacts, have taken a greater role.”
With the U.S. adding jobs at a pace of 227,000 per month this year, the fastest employment growth since 1999, without spurring enough inflation to meet the Fed’s 2 percent target for the personal consumption expenditures deflator, investors and strategists are turning more of their focus to secondary measures of the strength of the labor market.
“We’re not getting a lot of inflation in terms of wages along with increases in employment,” said Dan Heckman, a senior fixed-income strategist at U.S. Bank Wealth Management, which oversees $120 billion. The drop in unemployment below 6 percent means “a lot of analysts will be looking at the first fed funds rate increase coming in the first quarter more so than the second half,” he said.
Price Levels
The last time consumer-price increases were slowing before the Fed started increasing borrowing costs was in 1994 -- when Treasuries lost 3.3 percent in what was then the biggest selloff on record. At the time, Fed Chairman Alan Greenspan shocked the financial world by doubling the benchmark rate to 6 percent, even though inflation was at a seven-year low of 2.5 percent.
The Fed’s measure of five-year inflation expectations five-years in the future, known as the five-year five-year forward breakeven rate, was 2.17 percent on Sept. 29, down from 2.69 percent at the end of last year and the lowest in three years.
“One thing investors are targeting is there’s very little inflation in the system,” said Thomas di Galoma, head of fixed income rates at ED&F Man Capital Markets in New York. “There’s still a big deflationary trend that continues throughout the world.” Traders anticipate the Fed will start boosting short-term rates in September and lift them to about 0.75 percent by the end of 2015, futures trading shows. Fed officials raised their median rate forecast this month by a quarter-percentage point to 1.375 percent for the end of 2015.
Ten-year yields will rise to 2.78 percent by Dec. 31, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
German Bonds Decline the Most in Two Weeks on ECB Disappointment
German bonds fell, pushing 10-year (GSPG10YR) yields up the most in two weeks, as investors reassessed prospects for additional European Central Bank easing measures after it gave only outlines of a plan to buy private securities.
Bunds extended their decline after data showed U.S. employers added more jobs in September than analysts forecast. Spanish bonds were little changed after ECB President Mario Draghi yesterday failed to provide details on the size of its purchases of asset-backed securities and covered bonds. A report showed euro-region retail sales growth in August beat economist estimates, damping demand for the safest assets.
“The ECB meeting disappointed investors with a de-emphasis on expanding its balance sheet and few hints of further ECB action to stem rising deflation pressures,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The ECB looks set to adopt a wait-and-see stance but eventually will introduce QE,” he said, referring to buying sovereign bonds, or quantitative easing.
Germany’s 10-year yield climbed three basis points, or 0.03 percentage point, to 0.93 percent at 4:37 p.m. London time. The 1 percent bund due in August 2024 fell 0.24, or 2.40 euros per 1,000-euro ($1,254) face amount, to 100.675.
Focusing on plans to buy private debt as soon as this month to buoy euro-area inflation that’s the weakest in five years, Draghi yesterday left the option of purchasing government bonds in his toolbox. He also backpedaled on indications that he could boost the central bank’s balance sheet by as much as 1 trillion euros.
Draghi’s Reluctance
Draghi’s reluctance to spell out how many assets officials might buy disappointed investors pushing him to go all-in. With the outlook for consumer prices worsening and the 18-nation economy closer to renewed recession, they’re pressuring him to honor his pledge to take further action if needed.
The five-year, five-year forward inflation swap rate, a gauge of price-growth expectations in the euro area, dropped three basis points to 1.9 percent, the lowest level since Bloomberg began collecting the data in 2004.
The ECB will have to deliver a larger and broader asset-purchase program that includes government bonds next year as growth and inflation may continue to disappoint, HSBC Holdings Plc economist Janet Henry wrote in a client note dated yesterday. Goldman Sachs Group Inc. put the odds of a bond-based QE program at 30 percent, Frankfurt-based economist Dirk Schumacher wrote in a note dated yesterday.
Spanish Bonds
The rate on 10-year Spanish bonds was at 2.11 percent after advancing four basis points yesterday.
The U.S. jobless rate declined to a six-year low of 5.9 percent in September and employers added 248,000 jobs, following a 180,000 August increase that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.
Retail sales in the region rose 1.2 percent in August, compared with the median estimate of 0.1 percent among economists in a Bloomberg News survey.
Portuguese and Greek bonds climbed after Draghi said the ECB was prepared to buy ABS from nations rated below investment grade. France’s Christian Noyer joined policy makers from Germany and Austria in opposing a program to buy asset-backed securities, according to two euro-area officials.
Greek 10-year yields fell 12 basis points to 6.35 percent after dropping 16 basis points in the previous two days. The rate is still about 19 basis points higher this week. The yield on similar-maturity Portuguese bonds fell two basis points to 3.05 percent. German government securities returned 7.6 percent this year through yesterday, Bloomberg World Bond Indexes show. Spain’s earned 14 percent, and Greece’s 23 percent.
Bank of Japan Buys Record 3.5 Trillion Yen in Treasury Bills
The Bank of Japan purchased a record 3.5 trillion yen ($32 billion) in treasury bills today as the central bank pushes forward with unprecedented monetary easing to reach its 2 percent inflation target. The amount exceeded the previous records of 3 trillion yen on Aug. 22 and Aug. 1. The BOJ also scooped up 530 billion yen in government bonds from the market today as part of its 7 trillion yen in monthly debt buying, which has drained the availability of sovereign bills and bonds for investors.
“That was a big treasury bill operation,” said Toshiaki Terada, a researcher at Totan Research Co., a money-market brokerage in Tokyo. “The banks were wanting to sell, so that’s probably why the BOJ increased its buying.”
Japan’s three-month treasury bills traded with yields at minus 0.02 percent as of 10:23 a.m. in Tokyo, while the one-year bill yield was at negative 0.005 percent, according to Japan Bond Trading Co. The two-year note yield fell half a basis point to 0.06 percent, the lowest since Sept. 26. A basis point is 0.01 percentage point.
source: Bloomberg