Treasury yields climb from two-month low before factory report

Jobs Reports

U.S. employers hired 199,000 workers in March, after adding 236,000 in February, according to another Bloomberg survey before the Labor Department report on April 5.

Treasury 10-year yields climbed March 8 to 2.08%, the highest since April 5, 2012, after the Labor Department reported February’s employment increase and a drop in the unemployment rate, to 7.7% from 7.9%.

“The question is whether the data is starting to turn,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “This is a crucial area at about the 100-day moving average on 10-year yields. That’s what so far has stopped the rally.”

U.S. government securities lost investors 0.1% this year as of yesterday, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index of stocks gained 6.2% including reinvested dividends.

Factory Expansion

Treasuries rose yesterday after a measure of manufacturing was weaker than economists predicted. The Institute for Supply Management’s factory index fell to 51.3 in March from 54.2 the month before, boosting demand for the safest assets.

“ISM is still over 50 and consistent with an expansion,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, wrote in a note to clients. Payrolls and unemployment data “will be the first-order tradable events,” he wrote.

The Fed is currently purchasing $85 billion of Treasury and mortgage debt a month as it seeks to support the economy by capping yields. It is scheduled to purchase up to $1.75 billion in notes maturing between February 2036 and February 2043.

“Monetary policy is currently not accommodative enough,” Kocherlakota said in a speech March 27 in Edina, Minnesota. He said he favored easing policy by reducing to 5.5% from 6.5% the threshold at which the Fed will consider raising the main interest rate.

The central bank’s measure of traders’ outlook for inflation from 2018 to 2023, known as the five-year forward break-even rate, dropped to 2.71% as of the most recent figures on March 28, the lowest since Feb. 25.

Bloomberg News

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