Treasuries Poised for Second Weekly Loss Before Payrolls Report

By Theresa Barraclough


April 2 (Bloomberg) -- Treasuries headed for a second weekly loss on speculation a Labor Department report today will show U.S. companies added the most jobs in three years last month, damping demand for the safety of government debt.

Ten-year yields were within five basis points of the highest level since June after the U.S. announced yesterday it will sell $82 billion of notes and bonds next week, including a record-tying $40 billion sale of three-year securities. Trading of Treasuries will close early today for the Good Friday holiday.

“People will be accumulating short positions before the payrolls data,” said Akira Takei, a manager in the international bond-investment department in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest bank. “The market might have a knee-jerk reaction to sell after the data. The reaction may be intensified due to the lack of liquidity.”

The yield on the benchmark 10-year note fell one basis point to 3.87 percent as of 1:55 p.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security due February 2020 rose 2/32, or 63 cents per $1,000 face amount, to 98. The yield has increased two basis points this week.

Ten-year yields climbed to 3.92 percent on March 25, the highest level since June 11. Treasuries lost 0.9 percent in March in the first monthly drop this year, indexes compiled by Bank of America Corp.’s Merrill Lynch unit show.

Payrolls Report

U.S. payrolls increased by 184,000 last month, the most since March 2007, after falling by 36,000 in February, according to a Bloomberg News survey. The jobless rate held at 9.7 percent for a third month, a separate survey showed.

First-time jobless claims fell to 439,000 last week, from 445,000 the previous week, the Labor Department said yesterday.

“The labor markets are showing proof of finally starting to turn positive,” said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia.

Manufacturing expanded in March at the fastest pace in more than five years, the Institute for Supply Management reported yesterday. Its factory index rose to 59.6, the highest level since July 2004. Readings greater than 50 signal growth.

Next week’s U.S. debt sales will also include $8 billion in 10-year Treasury Inflation Protected Securities, $21 billion in 10-year notes and $13 billion in 30-year bonds, the Treasury announced. The auctions will take place over four days starting with the TIPS sale on April 5.

‘Quite Muted’

Bonds found buyers on speculation yields near the highest since June will lure investors as the Federal Reserve maintains it pledge to keep interest rates low for an “extended period.”

“This level is attractive,” said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities Capital Markets Co., a unit of Japan’s second-largest brokerage.

Fed Bank of New York President William Dudley said yesterday the U.S. economic recovery may be “quite muted” and job growth is too slow, justifying low borrowing costs for a long period.

Inflation will probably stay very low as slack diminishes slowly in an economy that’s “qualitatively different from previous post-World War II business cycles,” Dudley said in a speech in Lexington, Virginia.

The difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices, was 2.26 percentage points, compared with 2.41 percentage points at the beginning of the year.

“Current yields still look attractive against the backdrop of the Fed remaining on hold for an extended period,” Sergey Bondarchuk, an interest-rate strategist in New York at BNP Paribas SA, one of 18 primary dealers that are obliged to bid at Treasury auctions, wrote in a report dated yesterday.