Treasuries surge as Dow erases 2012 gain after U.S jobs report

June 1 (Bloomberg) -- Treasuries rose, driving 10-year yields below 1.50 percent for the first time, while the Dow Jones Industrial Average briefly erased its 2012 gain after U.S. employers created fewer jobs than economists estimated and Chinese manufacturing slowed. Commodities slumped.

Yields on 10-year Treasuries dropped six basis points to 1.50 percent at 9:41 a.m. New York time and reached 1.4387 percent earlier. The Standard & Poor’s 500 Index retreated 1.4 percent. The Stoxx Europe 600 Index slumped 1.8 percent. The S&P GSCI gauge of 24 commodities slipped to the lowest level since October as crude oil fell 2.6 percent to $84.30 a barrel. The yield on Germany’s two-year note fell as low as minus 0.012 percent. Gold futures rose 2.3 percent to $1,600.50 an ounce.

Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, the Labor Department said. The median estimate called for a 150,000 increase in May. The jobless rate rose to 8.2 percent. A report showed Chinese manufacturing grew less than estimated.

“Yuck, this is really not good,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “We’re at a very precarious point right now as far as investors’ psyche is concerned.”

Treasuries last month had their highest returns since August, returning 1.8 percent, reflecting the declining stability of the 17-member euro currency amid a worsening sovereign debt crisis, according to indexes compiled by Bank of America Merrill Lynch. The MSCI All-Country World Index of shares lost 8.9 percent including dividends, the biggest monthly decline since September. The euro declined 6.6 percent versus the dollar in May, the most since September.

April Peak

The S&P 500 peaked in 2012 on April 2, when it reached a four-year high of 1,419.04. Losses accelerated after the April 6 employment report from the U.S. Labor Department showed the slowest job creation in five months. Today’s report bolstered concern that the labor-market recovery is stalling.

Thirty-year Treasury bond yields declined six basis points to 2.58 percent, and fell to 2.5089 percent earlier, the lowest in Federal Reserve records beginning in 1953.

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.

Alcoa, Caterpillar

The Dow average slumped 160.83 points, or 1.3 percent, to 12,232.62 and earlier fell below 12,217.56, its level at the end of 2011.

Alcoa Inc., Caterpillar Inc. and Bank of America Corp. dropped at least 1.8 percent to pace losses among the largest companies. Wynn Resorts Ltd., MGM Resorts International and Las Vegas Sands Corp. slumped more than 2.5 percent as Macau casino gambling revenue grew at the slowest pace since July 2009. Facebook Inc. slid 2.7 percent after yesterday posting the biggest rally since its initial public offering last month.

Stocks fell around the world earlier after China led a slowdown in manufacturing across Asia. China’s Purchasing Managers’ Index fell to 50.4 in May from 53.3 in April, China’s statistics bureau and logistics federation said today in Beijing. Economists projected 52, according to the median estimate in a Bloomberg News survey. Measures for India, South Korea and Taiwan also declined.

“As if clear evidence of an emerging market slowdown and Europe’s woes were not enough to contend with, the market will now have to digest one of the nastier non-farm payroll reports we have seen in recent months,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.9 billion, wrote in an e-mail to clients.

Bloomberg News

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