Economists cut their forecasts for Treasury yields in 2013 to the least since Bloomberg began compiling the predictions after data last week 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.
The 10-year note yield touched the eight-month high Jan. 4 after the Labor Department said joblessness was 7.8 percent in December, higher than economist projections, even as the economy added 155,000 jobs. The employment figures tempered speculation the Fed will stop buying bonds this year, a strategy to spur the economy by putting downward pressure on benchmark interest rates.
U.S. growth will average 1 percent in the first half of 2013 and that is not enough to lower the 7.8 percent unemployment rate, Bill Gross, co-chief investment officer at Newport Beach, California-based Pacific Investment Management Co. wrote in a Twitter post today. Investors should buy five- year Treasuries, he said. The five-year yield was unchanged at 0.81 percent.
Four years after cutting the benchmark interest rate to virtually zero, Fed policy makers have expanded their third round of quantitative easing to include $40 billion in mortgage bonds and $45 billion in Treasuries. The central bank purchased $1.47 billion of Treasuries maturing from February 2036 to November 2042 today.
In the first two rounds, from 2008 to 2011, the central bank bought $2.3 trillion in securities to fuel economic growth and spur employment.
“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.
“We still have carry-over on the Fed question, particularly in terms of overseas,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “We sense that other investors globally will remain focused on Washington developments.”
Treasury volume rose Jan. 4 to the most in almost four months, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. Volume rose to $404 billion in New York, the most since Sept. 13. Daily volume averaged $239 billion in 2012.
Volatility in Treasuries traded near the highest level in almost two months on Jan. 4. Bank of America Merrill Lynch’s MOVE index, which measures price swings of U.S. government securities based on options, was at 62 basis points, down from 63.5 basis points reached the previous day, the most since Nov. 6. The 2012 average was 69.8 basis points.