NEW YORK: US Treasury debt prices rose on Monday, driving long yields to a four-week low, after a disappointing US payrolls report reignited economic concerns and raised bets on extra easing measures by the Federal Reserve.
Major US stock indexes lost nearly one percentage point, the S&P 500 briefly reaching its lowest point in more than three weeks, as investors sought protection in the Treasuries market. Volumes were low, however, as markets in Europe remained closed for the Easter holiday.
US economic concerns resurfaced after Friday's US nonfarm payrolls report showed just 120,000 jobs were added during March, far below the market's median expectation of 203,000. Treasuries did not fully react to the data last week as the market was only open for half a day during the Good Friday holiday.
"We're seeing more overhang from Friday's weak payrolls report," said Gennadiy Goldberg, interest-rate strategist at 4Cast, Ltd. in New York. "It definitely suggests that it's not a one-way trip out of the mess we're in at this point. The market was getting a little too optimistic on the data front."
Benchmark 10-year Treasury notes rose 2/32 in price to yield 2.04 percent, down from 2.06 percent at Friday's close. Thirty-year Treasury bonds gained 11/32 in price to yield 3.19 percent, down from 3.22 percent late on Friday.
Yields for both 10-year and 30-year Treasuries were at their lowest point in about four weeks, although trading volumes were light.
"The market's really quiet," said Raymond Remy, Treasury trader at Daiwa Securities in New York. "This despite the fact that we have a lot going on this week with buybacks, sellbacks and auctions."
The Fed is both buying and selling Treasuries this week as part of its Operation Twist, a program to extend the overall maturity of its portfolio and lower long-term interest rates. Meanwhile, starting on Tuesday, the Treasury Department will auction $72 billion in three-year notes, 10-year notes and 30-year bonds.
Before Friday's payrolls report, signs of steady improvement in the US economy had dampened expectations the Fed would engage in more Treasury purchases or a new mortgage buying program to stimulate the economy by lowering long-term interest rates.
Market participants had been interpreting recent statements by members of the Fed's policy-setting Federal Open Market Committee to mean that the bar for more easing was extremely high.
But analyst commentary on Monday widely echoed the notion that more easing wasn't as elusive as it had seemed just a week ago.
The holiday market closures and lack of significant US economic data on the calendar for Monday made Friday's report even more central to market action.
Mike Schumacher, head of rates strategy at UBS Securities in Stamford, Connecticut, said that in addition to the jobs data, the most significant driver of trading activity in Treasuries would be mortgage convexity hedging.
"The area of the worst negative convexity is right at 2.10 percent on the 10-year (yield)," he said. "There will be more rapid trading."
Mortgage convexity hedging is an operation performed by banks and market participants who hold mortgages on their books and decide they must prepare for a possible early repayment of some of the mortgage loans by selling Treasury notes.
Comments
Comments are closed.