Treasuries drop for 2nd day as U.S. jobs growth exceeds forecast

Historical Returns

From Treasuries to mortgage securities to corporate bonds, returns on U.S. fixed-income assets have averaged 6.6 percent throughout Obama’s term, exceeding the 4.6 percent during the previous four years under George W. Bush, according to Bank of America indexes. Yields on America’s fixed-income assets yield nine basis points less than the global average, compared with 51 basis points more back then, the data shows.

U.S. government debt securities have returned 24.7 percent since the end of October 2008, including reinvested interest, or 5.7 percent a year, Bank of America Merrill Lynch’s U.S. Treasury Master Index shows. That compares with 21.6 percent for government debt worldwide, according to the firm’s indexes.

U.S. initial applications for jobless benefits dropped 9,000 to 363,000 last week, the Labor Department said yesterday. Companies added 158,000 workers in October, according to an industry report. The increase was higher than forecast, data from the Roseland, New Jersey-based ADP Research Institute showed. It was the first ADP report derived using a larger sample and new methodology.

Fed Bank of Boston President Eric Rosengren said the central bank should buy mortgage bonds until the jobless rate falls to 7.25 percent and hold the target interest rate near zero until hitting 6.5 percent unemployment.

Inflation Watch

“As long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases,” Rosengren said yesterday in a speech in Wellesley, Massachusetts.

The Federal Open Market Committee said on Oct. 24 it will continue buying $40 billion in mortgage-backed securities each month, aiming to reduce unemployment. It reiterated that it will probably keep its benchmark interest rate close to zero at least through the middle of 2015.

The central bank is also swapping shorter-term Treasuries in its holdings with those due in six to 30 years. It plans to sell as much as $8 billion of debt maturing from February 2013 to April 2014 today as part of the program, according to Fed Bank of New York’s website.

Pacific Investment Management Co.’s Bill Gross said the Fed will continue with accommodative monetary policies even with the U.S. economy adding more jobs than forecast last month.

“There is nothing the Fed can do but continue down this road,” Gross, manager of the world’s biggest bond fund, said in a radio interview on “Bloomberg Surveillance” with Tom Keene.

U.S. consumer prices increased 2 percent in September from a year earlier, based on the latest data from the Labor Department, meaning 10-year notes have a negative real yield.

The difference between 10-year yields and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for costs in the economy over the life of the debt, was 2.54 percentage points. The average during the past decade is 2.18 percentage points.

Bloomberg News

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