Treasuries rose for a second day after U.S. employers added fewer jobs in December than forecast and Federal Reserve Chairman Ben S. Bernanke said the labor market may take five years to “normalize fully.”
Ten-year note yields dropped in the first back-to-back daily declines in three weeks after Labor Department data showed nonfarm payrolls added 103,000 positions, versus a median forecast of 150,000 in a Bloomberg News survey. Economists had upgraded estimates after ADP Employer Services said Jan. 5 companies added 297,000 jobs last month, triple the forecast.
“The market psyche was very much geared up for a much stronger number based on ADP, and it didn’t deliver,” said David Ader, head of government bond strategy at Stamford, Connecticut- based CRT Capital Group LLC. “It was weaker than anticipated, at least on the surface.”
The yield on the five-year note tumbled 10 basis points, or 0.10 percentage point, to 1.96 percent at 3:22 p.m. in New York, according to BGCantor Market Data. Earlier it rose four basis points. The price of the 2.125 percent security maturing in December 2015 advanced 15/32, or $4.69 per $1,000 face amount, to 100 25/32. The note was headed for a second weekly gain.
Yields on the 10-year note fell seven basis points to 3.33 percent. They ended their last two-day decline on Dec. 17. The benchmark security was poised for a weekly loss. Two-year note yields dropped seven basis points to 0.59 percent after earlier rising two basis points.
The Fed purchased $7.2 billion of Treasuries due from July 2013 to November 2014 today, strengthening demand for shorter- term notes. It was part of a central bank program aimed at boosting economic growth. Policy makers also have held the benchmark interest rate at zero to 0.25 percent since December 2008 to bolster the recovery.
“For those that believed the Fed was going to look at today’s number, wave the flag and begin tightening, stand down,” Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients. “Employment is lumpy and very uneven.”
Payrolls rose after a revised November gain of 71,000 jobs, more than previously estimated, Labor Department data showed. Private payrolls added 113,000 jobs in December, from a revised 79,000. The unemployment rate dropped to the lowest level since May 2009, 9.4 percent, reflecting gains in jobs and fewer people in the labor force.
“It could take four to five more years for the job market to normalize fully” at the pace of improvement that Fed officials project, Bernanke said in testimony to the Senate Budget Committee.
Pacific Investment Management Co.’s Bill Gross said that while he anticipates the end of the bull market in bonds, it’s not the beginning of a significant bear market as economic growth and government stimulus measures fail to translate into broader employment gains. Gross spoke in a radio interview today on “Bloomberg Surveillance” with Tom Keene.
U.S. government debt rose in 2010 as an unemployment rate hovering near 10 percent and record low inflation helped stoke demand for safety. Bonds returned 5.9 percent in 2010 after losing 3.7 percent in 2009, according to a Bank of America Merrill Lynch index.
Treasuries pared their 2010 rally in December on bets the Fed’s bond purchases and an extension of federal tax cuts through a compromise between President Barack Obama and congressional Republicans will revive the economy.
Spurring employment was a goal of the quantitative-easing plan announced by the Fed Nov. 3 to buy up to $600 billion of government debt through June. Policy makers said Dec. 14 at their last meeting that the pace of economic gains had been insufficient to reduce joblessness and they would continue the program, according to minutes released Jan. 4.
Ten-year note yields rose eight of the past 10 times that U.S. payrolls reports were released. They increased seven basis points on Sept. 3 after companies added more jobs in August than economists anticipated. Yields tumbled 16 basis points on June 4 after employers added fewer jobs in May than forecast.
Yields on the benchmark note will drop to 3.09 percent and two-year rates will be 0.61 percent by March 31, according to Bloomberg surveys of banks and securities firms, with the most recent forecasts given the heaviest weightings.
The U.S. will sell $66 billion next week in 2011’s first note and bond auctions: $32 billion in three-year debt, $21 billion in 10-year securities and $13 billion in 30-year bonds. The amounts, announced yesterday by the Treasury, are unchanged from last month’s sales of the maturities. The daily sales begin on Jan. 11.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities, narrowed to 2.36 percentage points, from 2.39 yesterday. It touched 2.42 percentage points on Jan. 5, the widest since April. Its 2010 low as 1.47 percentage points in August.
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