Treasury 10-year yields traded at almost the lowest level this year and volatility slid to a record on bets the Federal Reserve will affirm its commitment to the pace of bond purchases to support growth.
Benchmark 10-year notes gained as a private report showed employers added fewer jobs than forecast last month. Treasuries capped a third monthly gain yesterday on signs the U.S. economic recovery is losing momentum, reinforcing speculation the Fed won’t scale back unprecedented monetary stimulus, known as quantitative easing, or QE, following a two-day meeting ending today. The Treasury said it may decide to “gradually” cut coupon auction sizes and plans a floating-rate note sale as early as the fourth quarter.
“Over the past two months, we’ve started to see economic data slow down; It’s full speed ahead on QE,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “Maybe we’ll see nonfarm payrolls come in weaker than anticipated. Treasuries have already rallied pretty substantially. The question is ’are we going to test that 1.50% level?”
The benchmark 10-year yield declined three basis points, or 0.03 percentage point, to 1.64% at 8:29 a.m. in New York, after reaching the lowest level since Dec. 12 yesterday, according to Bloomberg Bond Trader prices. The 2% note maturing in February 2023 added 9/32, or $2.81 per $1,000 face amount, to 103 1/4.
The U.S. will sell $32 billion in three-year notes, $24 billion in 10-year debt and $16 billion in 30-year bonds on three consecutive days starting May 7, the Treasury announced.
The Treasury said it may gradually decrease coupon auction sizes and estimated the first floating rate auction will be held in the fourth quarter this year or in the first quarter of 2014.
In its quarterly refunding statement today, the Treasury said a final rule on the floating-rate note auction is planned for coming months, with a first sale estimated to occur either in the fourth quarter this year or the first quarter of 2014. The department said it will use the weekly high rate of 13-week Treasury bill auctions as the index for the notes.
U.S. government securities returned 1.1% in April, according to Bank of America Merrill Lynch indexes. The Standard & Poor’s 500 Index of shares gained 1.9% including reinvested dividends, data compiled by Bloomberg show.
Bank of America Merrill Lynch’s MOVE index measuring price swings in Treasuries fell to an all-time low of 49.24 yesterday.
The ADP Employer Services report showed that employers added 119,000 jobs last month, compared with a forecast of 150,000 jobs in a Bloomberg News survey of economists.
The Federal Open Market Committee plans to release a statement at 2 p.m. after a meeting in Washington. None of the 47 economists in a Bloomberg survey taken April 25-29 expects a decision at this week’s meeting to change the pace of its asset purchases.
The Fed is buying $85 billion of bonds each month to put downward pressure on borrowing costs. While Chairman Ben S. Bernanke said after the previous meeting on March 20 that further labor-market gains were needed to consider reducing monetary easing, minutes showed several officials discussed slowing the pace of buying.
The central bank plans to purchase $44 billion in Treasuries this month, just below the $45 billion monthly target given that it purchased about $46 billion of the securities in April.
The Fed spent $2.3 trillion on Treasury and mortgage- related debt from 2008 to 2011 in the first two rounds of its stimulus policy known as quantitative easing.
“We don’t expect any changes from the Fed today and see no indications of tapering,” said Michael Leister, an interest- rate strategist at Commerzbank AG in London. “The data has been surprising to the downside. We are looking for yields to grind lower.”
The Institute for Supply Management’s gauge of manufacturing declined to 50.5 in April from 51.3 the previous month, according to the median estimate of economists surveyed by Bloomberg before the data.
U.S. gross domestic product grew less than economists forecast in the first quarter, the Commerce Department said April 26. Business activity in the U.S. unexpectedly shrank in April for the first time in more than three years, the MNI Chicago Report said yesterday.