Treasury yield forecasts fall as notes remain little changed

Economists cut their forecasts for Treasury yields in 2013 to the least since Bloomberg began compiling the predictions as notes were little changed after data showed the unemployment rate was higher than expected.

U.S. 10-year yields will be 2.14 percent by Dec. 31, according to a Bloomberg survey of banks and securities companies up to the end of last week. Joblessness was 7.8 percent last month, the Labor Department said on Jan. 4, higher than economist projections, even as the economy added 155,000 jobs in December. Benchmark yields fell from an eight-month high reached on Jan. 4.

“We’re at levels where we won’t see any big moves higher in Treasury yields in the short term,” said Owen Callan, an analyst at Danske Bank A/S in Dublin. Last week’s “nonfarm payrolls were OK, but they’re not suggesting there will be a massive move down in the unemployment rate over the next few months.”

The benchmark 10-year yield was little changed at 1.90 percent as of 8:34 a.m. New York time, based on Bloomberg Bond Trader prices. The yield rose to 1.97 percent on Jan. 4, the most since April 26. The 1.625 percent note maturing in November 2022 traded at 97 18/32.

The U.S. employment figures tempered speculation the Federal Reserve will stop buying bonds this year. It uses the purchases to spur the economy by putting downward pressure on benchmark interest rates.

Asset Purchases

“I can’t see yields going above 2 percent over the next few months,” said Ali Jalai, who trades U.S. debt in Singapore at Scotiabank, a unit of Bank of Nova Scotia, one of the 21 primary dealers that trade directly with the Fed. “The U.S. economy is growing. It’s not accelerating and it’s not falling apart. I don’t see much reason to sell.”

After its December meeting, the Fed announced Treasury purchases of $45 billion a month in addition to $40 billion a month of mortgage-debt purchases begun in September.

The central bank plans to purchase as much as $1.75 billion of Treasuries maturing from February 2036 to November 2042 today, according to the Fed Bank of New York website.

“Several” members of the policy-setting Federal Open Market Committee said it would “probably be appropriate to slow or stop purchases well before the end of 2013,” according to minutes of their Dec. 11-12 meeting released last week.

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