Treasuries in tightest range in 2 weeks as factory jobs decline

Treasuries traded in the narrowest range in almost two weeks as a measure of U.S. factory employment dropped last month to the lowest in almost four years, even as manufacturing rebounded.

Benchmark 10-year note yields erased an earlier gain after an Institute for Supply Management report showed factory employment dropped to 48.7, the lowest since September 2009, from 50.1. U.S. government securities handed investors a loss of 2.5% in the first six months of 2013, the biggest decline since the first half of 2009, according to Bank of America Merrill Lynch data. A Labor Department report July 5 is forecast to show the U.S. added 165,000 jobs.

“People are risk averse right now,” said Tom Porcelli, chief U.S. economist at Royal Bank of Canada’s RBC Capital Markets unit, one of 21 primary dealers that trade with the Federal Reserve. “If you look at this report in its entirety, you come away with the conclusion that it’s a mixed report -- employment slipped.”

The benchmark 10-year yield was little changed at 2.49% at 2:29 p.m. New York time, according to Bloomberg Bond Trader prices. It earlier rose six basis points, or 0.06 percentage point. The price of the 1.75% note due in May 2023 was 93 1/2.

The yield traded in a 7.8 basis-point range, the narrowest since June 18.

Even after recent increases, the Treasury 10-year yield is still about a percentage point below its decade average of 3.56%.

Treasury Volatility

Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index closed at 97.13 on June 27, down from 110.98 on June 24, the highest since November 2011.

The Fed is buying $85 billion of Treasuries and mortgage- backed securities each month to support the economy by putting downward pressure on borrowing costs, including $3.14 billion in Treasuries today maturing between August 2020 and May 2023, according to the New York Fed’s Website.

Bernanke said on June 19 the central bank could reduce its monthly purchases if the employment outlook shows sustained improvement. U.S. employers added workers last month, a survey showed before the Labor Department data this week, after hiring 175,000 in May.

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