Treasuries rose, pushing five-, seven- and 10-year yields to record lows, amid concern the European debt crisis is widening and as data showed the U.S. economic expansion slowed during the first quarter.
Thirty-year bond yields fell to the lowest since December 2008 as U.S. weekly jobless claims exceeded forecasts, stirring speculation that tomorrow’s May employment data may trail estimates. The euro erased gains as German, French, Canadian and Dutch 10-year yields all declined to records lows. The Federal Reserve bought $1.8 billion of Treasuries due from February 2036 to August 2041.
“If you look at the global marketplace, we are the supermarket of safety,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. “We’re talking about an elevated level of fear. This is mainly driven by growing uncertainty in Europe. People are saying ’I can buy the Treasury and I know my money will be returned to me.’”
The benchmark 10-year yield fell eight basis points, or 0.08 percentage point, to 1.54 percent at 11:21 a.m. New York time. The 1.75 percent security maturing in May 2022 gained 25/32, or $7.81 per $1,000 face amount, to 101 30/32.
The yield reached as low as a record 1.5309 percent, while five- and seven-year note yields reached set all-time lows.
Thirty-year bonds yields declined 12 basis points to 2.60 percent. The record low was 2.5090 on Dec. 18, 2008, according to Fed figures beginning in 1953. The yield declined 17 basis points since yesterday, the biggest two-day drop since Nov. 1.
U.S. debt has returned 1.6 percent this month, according to indexes compiled by Bank of America Merrill Lynch. The MSCI All- Country World Index of shares slid 8.7 percent in the same period.
U.S. 10-year yields are down from 5.3 percent in June 2007, before the financial crisis intensified, and below the average of 4.96 percent during the past 20 years. Treasuries have returned 2.6 percent since the end of March, according to Bank of America Merrill Lynch indexes, after returning 9.8 percent last year, including reinvested interest, the most since 2008.
Trading volume yesterday rose to the highest since April 10. It reached $324 billion yesterday, up from $196 billion the previous day, through ICAP Plc, the world’s largest interdealer broker. The figure is above the 2012 average of $242 billion. Volume reached $439 billion on March 14, the highest since August.
U.S. debt pared a second monthly advance earlier as a technical indicator signaled their recent decline was poised to end.
The 14-day relative-strength index for 10-year Treasury yields fell to 28.5 yesterday. A reading less than 30 suggests to some traders that rates have declined too quickly and are set to change direction.
Valuation measures show Treasuries are at the most expensive levels ever. The term premium, a model created by economists at the Fed, touched negative 0.91 percent, the most expensive level ever. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
The U.S. economy grew more slowly in the first quarter than previously estimated, reflecting smaller gains in inventories and bigger government cutbacks.
Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, revised Commerce Department figures showed today in Washington. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.
The number of Americans applying for unemployment insurance payments rose last week to a one-month high, a sign that progress in reducing joblessness may be stalling. First-time claims for jobless benefits increased by 10,000 to 383,000 in the week ended May 26 from a revised 373,000 the prior week, the Labor Department said today. The initial claims exceeded the median estimate of 370,000 in a Bloomberg News survey of economists.
“There’s a nervousness about job growth in the spring, so people are placing bets in front of Friday’s payroll number that in general it may not be good,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York. “If Europe continues to worsen, there’s no reason to think we can’t get to 1.5 percent.”
Economists estimate a Labor Department report tomorrow will show the U.S. added 150,000 jobs in May, up from 115,000 the previous month. The jobless rate held at 8.1 percent, a separate survey showed.
A measure of price-increase predictions used by the Fed to set policy, the five-year, five-year forward break-even rate, which gauges the average inflation rate between 2017 and 2022, was 2.53 percent on May 25, down from a 2012 high of 2.78 percent on March 19. The rate slid nine basis points in April, the biggest monthly decline since December.
The central bank purchase of Treasuries was part of the plan to replace $400 billion of shorter-term debt in its holdings with longer maturities, according to the Fed Bank of New York’s website. The Fed previously expanded its balance sheet by $2.3 trillion in two rounds of bond purchases.
Fed policy makers are scheduled to meet in Washington on June 19-20 to consider what to do when the $400 billion maturity-extension program expires in June.
Italy’s prime minister and central bank chief pressed Germany to back more aggressive efforts to snuff out the escalating debt crisis, setting up a south-north showdown over how to stabilize the 17-nation euro economy.
Treasuries underperformed German bonds and U.K. gilts this month, according to the Bank of America Merrill Lynch indexes. German debt made a 2.8 percent profit and gilts returned 3.7 percent, the indexes show.
“It really continues to be the ongoing European saga and the competing headlines, which have driven the market to these record-low yield levels,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The fact that we saw a modest backup overnight is not a surprise, considering how low 10-year yields are.”