U.S. 2-Year Notes Drop Most Since August as Jobless Rate Falls
http://www.bloomberg.com/apps/news?pid=20601009&sid=a2TXCaBJHWh4#
By Daniel Kruger and Cordell Eddings
Dec. 4 (Bloomberg) -- Treasury two-year notes fell the most since August after the U.S. economy lost fewer jobs than forecast last month, signaling the labor market is emerging from the worst slump in the post-World War II era.
Two-year
note yields surged as much as 14 basis points to 0.86 percent as the Labor Department said employers cut 11,000 jobs last month, less than the most optimistic forecast among economists surveyed by Bloomberg News. The
unemployment rate fell to 10 percent from a 26-year high of 10.2 percent in October.
“You’ve taken out some of the positive things that have kept the front end of the market bid,” said
James Combias, New York-based head of Treasury trading at Mizuho Securities USA Inc., one of 18 primary dealers that trade with the Federal Reserve. “There is a lot of year-end buying to window dress balance sheet, which is preventing the sell-off from being worse.”
The yield on the
two-year note rose 10 basis points, or 0.10 percentage point, to 0.83 percent at 12:50 p.m. in New York, according to BGCantor Market Data. The 0.75 percent security maturing in November 2011 fell 6/32, or $1.88 per $1,000 face amount, to 99 27/32.
‘Ahead of Itself’
“We’ve been warning people that the Treasury market had gotten ahead of itself, given the extent of the recent rally, and now the market is selling off,” said
Ajay Rajadhyaksha, head of U.S. fixed-income strategy in New York at primary dealer Barclays Plc.
The improving labor market indicates the recession may have ended, though it is too soon to say precisely what month it stopped, said the head of the group charged with making the call.
“Today’s report makes it seem that the trough in employment will be around this month,”
Robert Hall, who heads the
National Bureau of Economic Research’s Business Cycle Dating Committee, said in an interview. “The trough in output was probably some time in the summer. The committee will need to balance the midyear date for output against the end-of-year date for employment.”
Traders increased wagers that the Fed will begin lifting its target rate for overnight loans next year after the U.S. government reported a smaller-than-estimated decrease in jobs last month.
Fed-Funds Futures
Federal-funds futures contracts on the Chicago Board of Trade show a 18 percent probability that the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by March, up from 13.1 percent odds yesterday. For a similar increase at the June meeting of the Federal Open Market Committee, the probability rose to 52.9 percent from 43 percent yesterday.
The dollar rose the most since June against the currencies of major U.S. trading partners. Gold futures fell as much as 4.9 percent from a record of $1,227.50 an ounce, set yesterday in New York.
Payrolls were forecast to decline 125,000, according to the median estimate of 82 economists surveyed by Bloomberg News Estimates ranged from decreases of 30,000 to 180,000. Revision added 159,000 from payroll figures previously reported for October and September. The October reading was revised to show a 111,000 drop in jobs compared with an initially reported 190,000 decline.
The so-called
underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- fell to 17.2 percent from 17.5 percent.
‘A Little Skeptically’
“Most investors have to view this job growth a little skeptically,” said
Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “Yesterday we had the ISM non-manufacturing survey which came in under 50 and showed a decline in service employment. Today’s report shows a big increase in service employment. Those two things don’t make sense.”
The Fed on Nov. 4 repeated it will keep
interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.
The Treasury will auction $40 billion of 3-year notes on Dec. 8, $21 billion of 10-year notes on Dec. 9 and $13 billion of 30-year bonds on Dec. 10. The U.S. will also sell $30 billion in three-month bills and $31 billion in six-month bills.
U.S. government bonds lost 1.8 percent this year after returning 14 percent in 2008, the most this decade, according to indexes compiled by Bank of America Merrill Lynch.
U.S. 2-Year Notes Drop Most Since August as Jobless Rate Falls - Bloomberg.com
