Treasuries drop as jobs grow

Treasuries fell before the Federal Reserve concludes a two-day meeting where it is forecast to reduce its monthly debt-buying program to almost half of the amount it was purchasing at the end of last year.

U.S. debt extended losses as a report showed companies added more jobs this month than forecast. A separate report is forecast to show U.S. gross domestic product growth slowed in the first quarter. The Fed is forecast to cut monthly purchases to $45 billion today from $85 billion in December, according to a Bloomberg News survey of economists.

“It’s where the economy is that matters, it’s data dependent,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 22 primary dealers that trade with the Fed. “For the short term, the market will be under a bit of pressure only because of supply--we’ll have slightly higher yields.”

Benchmark 10-year yields rose two basis points, or 0.02 percentage point, to 2.71 percent as of 8:16 a.m. in New York, based on Bloomberg Bond Trader data. The price of the 2.75 percent note due in February 2024 was 100 10/32.

The 30-year bond yield dropped five basis points in April, to 3.51 percent. Thirty-year securities led a rally this month on speculation inflation will stay below the Fed’s target, while unrest in Ukraine increased demand for the relative safety of bonds.

 

April Gains

The Bloomberg U.S. Treasury Bond Index rose 0.4 percent this month. Treasuries have gained 1.1 percent in April on average since 2010, based on the index. Reasons ranged from slowing economic growth to the European debt crisis to Fed purchases of government debt.

Economic growth slowed to an annualized 1.2 percent in the first quarter from 2.6 percent in the final three months of last year, according to a Bloomberg survey before the Commerce Department report today. Winter weather depressed consumption and disrupted homebuilding and manufacturing.

“Investors who are expecting a pickup in the economy after winter snowstorms may be too optimistic,” said Hajime Nagata, a money manager in Tokyo at Diam Co., which has the equivalent of $115 billion in assets. “The odds of yields falling are greater than the odds of yields rising.”

Diam extended the duration of its Treasury holdings two weeks ago by buying five-year notes, Nagata said. Market volatility has been low and will probably stay that way, which creates an opportunity to capture higher yields by buying longer maturities, he said.

Duration refers to a portfolio’s sensitivity to changes in yields. Shorter positions tend to favor shorter maturities, a defensive stance in case yields rise.

 

Fed Policy 

The Fed will keep their target interest rate for overnight bank lending in a range of zero to 0.25 percent, the survey show. The Fed’s preferred inflation gauge has been below its 2 percent goal for almost two years.

The Treasury Department is scheduled to announce the amounts it will sell in 3-, 10- and 30-year debt over three days starting May 6.

U.S. companies boosted payrolls by 220,000 in April, figures from the ADP Research Institute in Roseland, New Jersey, showed. The median forecast of 45 economists surveyed by Bloomberg called for an advance of 210,000.

 

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