Treasuries Decline as Traders Shift Focus to Quarterly Auctions
http://www.bloomberg.com/apps/news?pid=20601009&sid=axl.VOHONDho&refer=bond#
By Molly Seltzer [] and Susanne Walker
Feb. 6 (Bloomberg) -- Treasuries fell as trades focused on the record $67 billion in notes and bonds scheduled to be sold next week after a government report showed that unemployment climbed to the highest level since 1992.
The jobless rate rose to 7.6 percent from 7.2 percent in December, the Labor Department said today in Washington. Payrolls fell by 598,000, the biggest monthly decline since December 1974, after dropping by 577,000 in the previous month.
“We know the economy will get weaker,” said
Theodore Ake, head of U.S. Treasury trading at Mizuho Securities USA Inc. in New York, one of 17 primary dealers that trade with the Federal Reserve. “The uncertainties are, ‘How much paper, who’s going to buy all that paper and at what point will the Fed step in to purchase longer term paper?’”
Benchmark 10-year note yields rose five basis points, or 0.05 percentage point, to 2.95 percent at 8:52 a.m. in New York, according to BGCantor Market Data. Yields touched 2.96 percent, the highest since Nov. 28.
Two-year note yields were little changed at 0.96 percent. Thirty-year bond yields increased four basis points to 3.69 percent.
The 10-year yield fell to a record low of 2.04 percent on Dec. 18, compared with an average 4.28 percent for the past five years.
The median forecast of 75 economists surveyed by Bloomberg News was for a reduction in payrolls of 540,000 and a jobless rate of 7.5 percent. The U.S. lost 2.589 million jobs last year, just short of 2.75 million at the end of World War II.
Initial claims for unemployment benefits increased to 626,000 in the week ended Jan. 31, a 26-year high, the Labor Department said yesterday.
Debt Sales
Treasuries fell on Feb. 4 as the government said in a statement on its quarterly refunding of long-term debt that it will sell a record $67 billion in notes and bonds next week and reintroduce the seven-year note. The U.S. will auction $32 billion in three-year notes on Feb. 10, $21 billion in 10-year notes Feb. 11 and $14 billion in 30-year bonds Feb. 12, the Treasury Department said.
“The over-riding concern is supply, both current supply and future supply,” said
Tom di Galoma, managing director of government bonds at Jefferies & Co., a brokerage for institutional investors in New York.
‘Massive Battle’
Treasuries lost 0.1 percent this month, after a 3.1 percent decline in January that was the most in almost five years, according to Merrill Lynch & Co.’s Treasury Master Index. The securities declined as President Barack Obama lobbied lawmakers to pass his economic plan, which may cost about $900 billion.
The Fed’s holdings of Treasuries on behalf of foreign entities including central banks fell for the first time in almost six months, declining by 0.14 percent to $1.735 trillion for the week ended Feb. 4, the central bank said yesterday.
The U.S. is increasing its debt sales to finance a growing budget deficit and programs to spur the economy. Treasuries lost 3.1 percent this year, according to Merrill Lynch & Co. indexes, as traders and investors purchased riskier assets amid concern U.S. securities sales will reach unprecedented levels. Corporate debt gained 1.4 percent this year, according to Merrill indexes.
“You have this massive battle going on,”
Joseph Shatz, a senior government bond strategist in New York at Merrill Lynch & Co., said yesterday. The firm is one of the 17 primary dealers that trade with the Federal Reserve. “Economic weakness, disinflation, a flight to quality and liquidity, and the possibility of the Fed buying Treasuries -- all of these are putting downward pressure on yields. And on the other hand, you have the longer-term prospects of higher yields due to the massive increase in the money supply and Treasury supply.”
Unemployment Rate
The Fed reiterated in a statement on Jan. 28 it’s prepared to buy Treasuries to resuscitate lending. The central bank is seeking to improve conditions in credit markets after they froze last year, according to the statement.
Treasury Secretary
Timothy Geithner will unveil the administration’s financial-recovery plan in a speech Feb. 9 in Boston, a Treasury official said. The effort aims to shore up the nation’s banks and restart lending to households and businesses.
The U.S. unemployment rate may eventually exceed 10 percent,
Martin Feldstein, a Harvard University professor, said last month in an interview on Bloomberg Television. Feldstein is president emeritus of the National Bureau of Economic Research, a Cambridge, Massachusetts-based group that declares the beginning and end of recessions.
“The unemployment rate is more important now than it has been in the past couple of years,”
Adam Brown, director of Treasury trading at primary dealer Barclays Capital Inc. in New York, said yesterday. “We were at such a low level of unemployment before. Now we’re getting toward the higher end in terms of averages. It’s big psychologically for the public.”
Foreign Demand
China, the largest foreign owner of U.S. government debt, will add to its holdings as it invests foreign-currency reserves, JPMorgan Chase & Co. said in a report today. Investors began to speculate that Chinese demand for Treasuries would wane after exports from the nation declined in November and December, curtailing foreign-currency flows into the country. China owns $681.9 billion of the $5.75 trillion in U.S. marketable debt, Treasury Department data show.
China has been buying to invest its $1.95 trillion in foreign reserves, the world’s biggest, and that won’t stop, JPMorgan analysts led by
Frank Gong in Hong Kong said today.
