Treasuries rose, pushing 10-year note yields to almost a two-week low, amid concern that Hurricane Sandy will disrupt business and hurt the U.S. economic recovery.
The Securities Industry and Financial Markets Association recommended trading in dollar-denominated fixed-income securities end at noon in New York because of the storm. U.S. debt remained higher even as a report showed consumer spending exceeded forecasts in August. Treasuries were also supported on speculation that Greece will need to restructure its debt, and before a report this week that economists predict will show the U.S. jobless rate climbed in October.
“Most eyes are on the hurricane and as such volume is half the normal amount,” said David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “The same European stories and uncertainty brought us a little lower in yield overnight, and those stories and the uncertainty persists. There was nothing in the data that we didn’t know coming into today.”
The U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 1.71 percent at 8:49 a.m. in New York, the lowest since Oct. 16, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 rose 9/32, or $2.81 per $1,000 face amount, to 99 7/32.
Jobs Outlook
The jobless rate climbed to 7.9 percent this month from a three-year low of 7.8 percent in September, according to a Bloomberg News survey of economists before the Nov. 2 report. Employers hired 125,000 workers, following an increase of 114,000 in September, according to another Bloomberg survey.
“The U.S. economy is just not going strong enough to dissuade the Federal Reserve from further stimulus,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “We don’t know how bad Hurricane Sandy will be at this point, but any substantial damage created by it will probably have a near-term negative impact on growth expectation. That will underpin demand for Treasuries.”
Treasuries rose on Oct. 26, sending the 10-year yield down eight basis points, after a report showed Spain’s unemployment rate climbed to a record 25.02 percent, fueling demand for the relative safety of U.S. debt.
The European Commission, the European Central Bank and the International Monetary Fund proposed a restructuring of Greek debt that would require public-sector lenders to take losses, Spiegel reported without saying there it got the information.
The hurricane led some investors to buy Treasuries as a haven, said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender.
The Treasury is scheduled to sell $32 billion of three- month bills, $28 billion of six-month securities and $25 billion of four-week debt today. The Fed is scheduled to sell $7 billion to $8 billion of Treasuries due from November 2015 through December 2015 at 11 a.m. The sales are part of the Fed’s program to replace short-term debt in its portfolio with longer-term Treasuries in an effort to keep borrowing costs low.
The securities association will monitor conditions to determine any additional recommendations for tomorrow, it said in its statement.
Household purchases, which account for about 70 percent of the economy, rose 0.8 percent, the most since February, after a 0.5 percent gain the prior month, a Commerce Department report showed today in Washington. The median estimate in a Bloombergsurvey of 71 economists called for a 0.6 percent rise. Incomes rose 0.4 percent, the most since March.
Historical Prices
From Treasuries to mortgage securities to corporate bonds, returns on U.S. fixed-income assets have averaged 6.5 percent throughout President Barack Obama’s term, exceeding the 4.6 percent during the previous four years under George W. Bush, according to Bank of America Merrill Lynch indexes. Yields on America’s fixed-income assets are seven basis points less than the global average, compared with 51 basis points more back then, the data shows.
The rally in Treasuries is almost over, and 10-year yields will rise to 2 percent by year-end, said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc.
“I’m not recommending my customers buy Treasuries,” Shimazu said. “Equities and commodities are much better investments. The economy isn’t great, but it continues to recover.”
Treasuries gained 1.7 percent in 2012 through last week, the Bank of America figures show. The MSCI All-Country World Index returned 13 percent, according to data compiled by Bloomberg. The S&P GSCI Index of commodities was little changed.
A victory by Obama in next month’s vote with neither party controlling both houses of Congress may increase concern that the so-called fiscal cliff will slow growth, Priya Misra, Shyam Rajan, Bank of America strategists in New York, wrote in the report Oct. 26.
The fiscal cliff refers to $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless the U.S. Congress acts.
This outcome will lead investors to favor longer maturities because it threatens the economy, according to Bank of America, one of the 21 primary dealers that trade directly with the Fed.
A victory by challenger Mitt Romney may lead to questions about a change in central bank leadership and policy. This should push yields higher, led by mid-term rates, according to the report.
Yields on the shortest maturities are anchored by the Fed’s view that it will need to keep its target for overnight bank lending close to zero at least through the middle of 2015.
Romney has said he won’t reappoint Fed Chairman Ben S. Bernanke, who has tried to put downward pressure on yields by buying Treasury and mortgage debt.
