June 1, 2012 / 4:55 PM / 8 years ago

TREASURIES-Weak jobs data knock U.S. yields lower

* U.S. 10-year yield hit record low below 1.45 pct
    * U.S. 30-year yield touches historic low
    * Weak job data stoke talk of more Fed bond purchases
    * Record low mortgage rates might not help housing


    By Richard Leong	
    NEW YORK, June 1 (Reuters) - U.S. government debt yields
dropped to record lows on Friday after a stunningly weak report
on U.S. job growth stoked worries of an economic slowdown and
raised bets for a third round of bond purchases from the Federal
Reserve.	
    The soft U.S. employment figures reinforced the view of a
global economic slowdown, caused in part by Europe's debt crisis
that has raged for more than two years.	
    Contagion fears from a possible Greek exit from the euro and
Spain's banking troubles have further driven this week's
stampede into cash and low-risk government debt.	
    U.S. Treasuries' rock-bottom yields and Washington's own
fiscal problems have not deterred the global chase for
investment safe-havens, analysts and investors said. 	
    "There is a potential for Treasuries to go up in price in a
further flight-to-quality," said Bill Irving, a portfolio
manager with Fidelity Investments in Merrimack, New Hampshire,
who oversees about $45 billion in bonds.	
    U.S. Treasuries just finished their best month since
September. Barclays' Treasury index rose 1.71 percent in May,
making it the highest returning U.S. bond sector last month.	
    Benchmark 10-year Treasury notes were up as much
as 1-4/32 in price with a yield of 1.442 percent, the lowest
level in records going back to the early 1800s, according to
data gathered by Reuters. They last traded up 25/32 with a 1.479
percent yield, down nearly 9 basis points on the day.	
    The unrelenting bid for Treasuries could send benchmark
yields closer to the 1-percent mark, an unlikely scenario 2-1/2
months ago when some analysts had predicted the end of the
30-year secular bull run for Treasuries. 	
    The 10-year note yield peaked near 2.40 percent in
mid-March, almost 1 point above its current level.	
    An outcome of these very low Treasuries yields is record low
mortgage rates, which are benchmarked against Treasuries.	
    The interest rates on 30-year fixed-rate mortgages averaged 
a record low of 3.94 percent in the latest week, according to
Bankrate.com.	
    Bankrate.com's senior financial analyst Greg McBride said it
is possible the average 30-year rate could fall to 3.75 percent
if bond yields fall further. 	
    McBride, however, said cheap loans in themselves are not
enough to stimulate home sales and refinancing if consumers feel
uneasy about the labor market.	
    The May jobs report "is a double-edge sword for potential
home buyers. We are getting these low mortgage rates, but people
are not going to buy a home if they don't feel warm and fuzzy
about the jobs market," he said.	
    	
    WORSENING U.S. JOBS PICTURE	
    Friday's poor jobs figures punctuated this week's slew of
disappointing U.S. economic data.	
    American employers added 69,000 workers in May, far short of
the 150,000 predicted by economists. The jobless rate
unexpectedly edged up to 8.2 percent from 8.1 percent in April,
the U.S. Labor Department said on Friday. 	
    "There's no positive spin that can be put on the May
employment report. It was a disappointment, pure and simple,"
said Jim Baird, chief investment strategist at Plante Moran
Financial Advisors in Kalamazoo, Michigan. 	
    Adding to investor worries was a private group's report that
showed slower U.S. manufacturing growth in May. 	
    Fears the euro-zone debt crisis is spilling over to the
United States sparked fresh buying of U.S., German, Japan, Swiss
and Nordic government debt, which are perceived as safe havens
in times of market turbulence.	
    Wall Street stocks extended this week's sell-off with the
Standard & Poor's 500 losing 2 percent. 	
    Germany, in an effort to offer some relief to its struggling
neighbors, softened its push for severe budget cuts across the
euro zone on Friday. The move helped lower the borrowing costs
for Spain and Italy, although they remained at unsustainable
levels. 	
 	
    	
    Friday's 10-year note yield surpassed the record low set on
Thursday of 1.53 percent. The 10-year yield is on track to fall
almost 27 basis points for the week, which would be the biggest
weekly drop since early November.	
    The 30-year bond last traded up 1-29/32 in price
for a yield of 2.55 percent, down nearly 9 basis points from
Thursday's close. The 30-year yield earlier touched 2.510
percent, a record low.	
    The 30-year yield is poised to decline about 29 basis points
from a week ago, which would be the biggest weekly fall since
late September.	
    In the futures market, Treasury futures, with the exception
of two-years, hit contract highs. The September ultra bond
contract last traded up 3-15/32 at 172-15/32 after
touching a contract high of 174-3/32 earlier.	
    Short-term U.S. interest rates futures for delivery in 2014
and beyond implied traders now see no chance the Federal
Reserve will raise until second quarter of 2015. The Fed has
pledged it would not budge from its near-zero rate policy target
until at least late 2014.	
    In fact, May's dismal jobs data intensified speculation the
U.S. central bank will embark on more bond purchases in a bid to
avert a recession. Fed policy-makers as recently as this week
appeared split on whether more stimulus could lower
unemployment.	
    The latest payroll report "might bring a forceful response
from policymakers," said Fidelity's Irving, adding, "the Fed
policymakers have their fingers on the trigger, but they are not
ready pull it yet."
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