Treasury yields almost at 9-month high before payrolls report

Factory Data

The MNI Chicago Report’s business barometer rose to 55.6 this month, the highest since April, after 50 in December. A reading of 50 is the dividing line between expansion and contraction. The median forecast of 48 economists surveyed by Bloomberg was 50.5.

The number “was a surprise to the upside -- it was worth a little down trade,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 21 primary dealers that trade directly with the Fed. “We’re looking forward to tomorrow’s payrolls report.”

Initial jobless claims rose 38,000 in the week ended Jan. 26, the most since Nov. 10, to 368,000, the Labor Department reported in Washington. Economists forecast 350,000 filings, according to the Bloomberg survey median. The increase followed a combined 45,000 drop in the prior two weeks.

‘Downside Risks’

U.S. government debt gained yesterday after the Commerce Department said the U.S. economy unexpectedly shrank in the fourth quarter and the Fed reiterated its commitment to asset purchases. It purchased notes maturing from February 2036 to November 2042 today.

The Federal Open Market Committee said in a statement yesterday that growth, while slowed by “transitory factors,” faces “downside risks” even after strains in global financial markets have eased. The expansion will pick up and unemployment will fall in response to “appropriate policy accommodation,” Fed officials said in a statement after a two-day meeting.

“The FOMC made it pretty clear the Fed would continue to buy through 2013,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc. “I wouldn’t be surprised to see us go through 1.90% on the 10-year over the next three or four trading sessions.”

The yield will fall to 1.83% by the end of the first quarter, according to the weighted average forecast of 79 economists in a Bloomberg survey.

Bloomberg News

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