Treasuries Head for Fifth Weekly Gain as Jobs Lost in November
http://www.bloomberg.com/apps/news?pid=20602007&sid=acEoj6OXn80Y&refer=govt_bonds#
By Dakin Campbell and Cordell Eddings
Dec. 5 (Bloomberg) -- Treasuries headed for a fifth week of gains, pushing yields to record lows, after a report showed U.S. employers eliminated jobs in November at the fastest pace in 34 years as the recession deepened.
Yields on two-, 10- and 30-year securities declined to the lowest levels since the Treasury began regular sales of the debt.
Three-month bill rates are 0.01 percent for a third day. Initial price gains posted following the Labor Department report were erased as traders speculated that the pace of the rally over the last seven days is unsustainable.
“People are just flocking to Treasuries,” said
Richard Schlanger, a portfolio manager at Pioneer Investments in Boston, which oversees $44 billion in fixed income. “All you can say is, ‘My God.’ Things are going to get progressively worse.”
Two-year note
yields dropped to 0.77 percent, the lowest level since regular sales began in 1975. The yield rose three basis points to 0.84 percent at 12 p.m. in New York, according to BGCantor Market Data. The 1.25 percent security maturing in November 2010 rose 2/32, or 63 cents per $1,000 face value, to 100 25/32. The yield tumbled 15 basis points in the week.
The 10-year note
yield was 2.57 percent, after dropping to as low as 2.50 percent. The security is also set for a fifth weekly gain, with the yield declining 35 basis points this week.
Thirty-year yields fell 1 basis point to 3.03 percent, bringing the weekly decline to 41 basis points. The yield fell as low as 3.005 percent.
‘Extreme’ Risk Aversion
Non-farm payrolls in the U.S. shrank by 533,000 in November, the 11th month that companies have cut jobs, the Labor Department said today. That was above the 335,000 median estimate of 73 economists in a Bloomberg News survey.
Rates on Treasury bills are near zero as investors sacrifice returns to ensure the safety of their cash. U.S. debt of all maturities has returned 12.3 percent this year while the Standard % Poor’s 500 Index has lost 42 percent.
“In the short end of the Treasury curve the risk aversion is still very extreme,” said
James Demasi, a fixed-income strategist at brokerage Stifel Nicolaus & Co. in Baltimore. “Eventually you will have to have investors step out of T-Bills and into riskier assets.”
The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both record highs in a survey that goes back 29 years, the Mortgage Bankers Association said. The Federal Reserve said yesterday it plans to buy debt issued by the government-sponsored home-finance companies maturing over the next two years in an effort to help the housing market.
‘Extreme Duress’
Evidence of a deepening recession has raised speculation lawmakers will help the U.S. auto companies avert bankruptcy and pass a bigger-than-expected fiscal stimulus package in President-elect
Barack Obama’s first days in office. The chief executives of General Motors Corp., Chrysler and Ford Motor Co. face House Financial Services committee members today as they renew calls for government help.
Jared Bernstein, an economist at the Economic Policy Institute in Washington who was named today as chief economist and economic policy director to Vice President-elect
Joe Biden, said the job losses mean any economic stimulus to combat the recession likely will have to be larger than originally anticipated.
“The job market is under extreme duress,” Bernstein said in an interview. “It’s fair to assume that the upper bound on a stimulus package is going up, not down.”
Economists such as
Kenneth Rogoff, a Harvard University professor, and
Joseph Stiglitz, a Columbia University professor and Nobel Prize winner, have called for at least $1 trillion in government spending to spur the economy.
Fed Expectations
Bonds have rallied this week as traders raised bets the Fed will cut interest rates to near zero and Fed Chairman
Ben S. Bernanke said the central bank may buy Treasuries to target long-term rates to revive the economy.
The
difference in yield between two- and 10-year notes widened three basis points to 1.78 percentage points, the first increase in five days. The so-called yield curve is still the flattest since September, as traders bet longer-maturity securities will outperform.
Futures contracts on the Chicago Board of Trade show 80 percent odds that policy makers will lower the 1 percent target rate for overnight lending between banks by 75 basis points on Dec. 16, up from 32 percent a week ago. The rest of the bets are for a 50 basis-point cut.
‘Overbought Conditions’
Central banks in the euro region, the U.K., Sweden, Australia, Indonesia, New Zealand and Thailand cut interest rates this week as policy makers stepped up their response to the credit crisis.
A gauge of momentum used by traders to predict a change in price direction indicates 10-year notes are at so-called overbought levels. The 14-day relative-strength index for the March 10-year note futures contract reached 76.8. Readings above 70 indicate prices are likely to fall, while those below 30 indicate they’re likely to rise.
“The market is extremely overbought but what takes overbought conditions out of the market is time,” said
Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world’s largest inter-dealer broker. “People think when we are overbought we’ll have a correction, but it doesn’t matter. If you stay at that area for a period of days you will take that overbought scenario out of the market.”
The yield on the so-called long bond reached a record low for the fifth straight day, prompting some investors to bet Treasury yields will rise.
‘Clearly A Bubble’
“Why anyone would give money to the United States government for 30 years at three or four percent is beyond comprehension,” said
Jim Rogers, chairman of Rogers Holdings in Singapore, in an interview on Bloomberg Television. “Everyone is pumping bonds like crazy. It’s clearly a bubble.”
Money-market rates show banks are reluctant to lend to each other. The difference between what lenders and the Treasury pay to borrow money for three months, the so-called
TED spread, was little changed 218 basis points today. The spread reached 464 basis points on Oct. 10, the most since Bloomberg began tracking the figure in 1984.
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