Treasuries fell for a second day as a report showed the U.S. unemployment rate unexpectedly declined last month, boosting speculation that stimulus from the Federal Reserve will accelerate the labor recovery and damping refuge demand.
The yield on the 10-year note rose to the highest level in a week as a report showed the U.S. added 114,000 jobs in September, compared with a revised 142,000 gain the previous month. The benchmark security broke a four-day rally yesterday after minutes of the Fed’s last meeting showed policy makers saw manageable risks in a third round of U.S. bond buying.
“The reaction is about the unemployment rate declining -- household employment moved up an awful lot, and you had revisions in the prior month’s payrolls,” Christopher Sullivan, who oversees $2 billion as chief investment officer at United Nations Federal Credit Union in New York. “It’s a piece of more optimistic data.”
The yield on 10-year notes rose five basis points, or 0.05 percentage point, to 1.73 percent at 9:06 a.m. New York time, according to Bloomberg Bond Trader data, the highest since Sept. 25. The 1.625 percent security due August 2022 slipped 13/32, or $4.06 per $1,000 face amount, to 99 3/32. Thirty-year bond yields rose six basis points to 2.95 percent.
The unemployment rate fell to 7.8 percent in September, the lowest since January 2009, as employers took on more part-time workers. The rate, which dropped from 8.1 percent, was forecast to rise to 8.2 percent, according to the median estimate of 88 economists surveyed by Bloomberg. The median estimate for job gains was 115,000, according to another survey.
“People are looking at the rate more than anything else,” said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, one of the 21 primary dealers that trade with the Fed. “They are saying it’s not as bad as they originally thought. It’s taken some luster out of the marketplace.”
The payrolls data comes a month before the U.S. presidential election. Employment and the economy are central themes in the campaign, with President Barack Obama and Republican challenger Mitt Romney each trying to convince voters they can best energize the expansion and create jobs. The jobless rate has stayed above 8 percent since February 2009.
While reducing borrowing costs, the Fed hasn’t made steady progress toward meeting its mandate to achieve full employment.
Fed Chairman Ben S. Bernanke this week defended the central bank’s bond-buying program, saying officials will sustain record stimulus even after the domestic expansion gains strength. The Fed said on Sept. 13 it will keep the main interest rate near zero until at least mid-2015 and buy $40 billion of mortgage debt every month in a third round of so-called quantitative easing.
The central bank bought $2.3 trillion of Treasury and mortgage-related debt from 2008 to 2011 in two rounds of purchases, known as quantitative easing. It also began its Operation Twist program to replace shorter-term debt in its portfolio with longer-term securities and put downward pressure on long-term borrowing costs.
A private report Oct. 3 showed companies added more jobs than forecast. Employers added 162,000 jobs last month, ADP Employer Services data showed, compared with a forecast of 140,000 jobs in a Bloomberg News survey of economists.
Applications for jobless benefits increased 4,000 to 367,000 in the week ended Sept. 29, Labor Department figures showed yesterday. The median forecast of 51 economists in a Bloomberg News survey was for a rise in initial jobless claims to 370,000.
Treasuries have gained 2.1 percent this year, according to Merrill Lynch indexes. Bonds returned 9.8 percent last year after gaining 5.9 percent in 2010, according to the index.
Ten-year yields will rise to 1.75 percent by December, according to the median forecast in Bloomberg surveys of banks and securities firms.
The U.S. will sell $66 billion in notes and bonds next week on three consecutive days beginning Oct. 9. It will auction $32 billion in three-year debt, $21 billion in 10-year securities and $13 billion in 30-year bonds, the Treasury announced yesterday.
“The market will turn its attention to next week’s supply,” said Ray Remy, head of fixed income in New York at the primary dealer Daiwa Capital Markets America Inc. “At these levels, the market has to go to higher yields.”