Treasuries Snap Loss as Economists Say Not Enough Jobs Created Last Month

Benchmark 10-year Treasuries held a three-day decline before a government report that economists said will show U.S. job gains in September fell short of what’s needed to cut the unemployment rate.

The Federal Reserve is scheduled to buy $1.5 billion to $2 billion of Treasuries due from 2021 to 2031 today, according to its website. The purchases are part of the central bank’s plan to support the economy by keeping long-term borrowing costs down. The difference between two- and 30-year rates has shrunk to 2.69 percentage points from this year’s high of 4.04 percentage points in January, flattening the so-called yield curve.

Ten-year yields were little changed at 1.99 percent at 8:15 a.m. in London, according to Bloomberg Bond Trader prices. The 2.125 percent security due August 2021 changed hands at 101 7/32. The rate fell to 1.6714 percent on Sept. 23, the least ever based on central bank data.

“The yield curve will flatten further,” said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co. in Tokyo, which oversees the equivalent of $39.1 billion and is a unit of Japan’s second-largest bank. “Today’s number will be negative for consumer spending.”

Mizuho Asset is favoring Treasuries maturing in more than seven years, Nakamura said.

The Fed said on Sept. 21 that it would buy $400 billion of U.S. debt with maturities of six to 30 years through June while selling an equal amount of securities due in three years or less.

Jobs Report

U.S. employment climbed by 55,000 workers, after no change in August, according to the median forecast of 91 economists surveyed by Bloomberg News before the Labor Department reports the figure. The jobless rate probably held at 9.1 percent, a separate survey shows.

The slowdown in U.S. economic growth combined and Europe’s debt crisis have driven investors to snap up Treasuries this year.

U.S. government securities have returned 8.6 percent in 2011, the most since 2008, based on Bank of America Merrill Lynch data.

The trend reversed this week as European officials expanded their efforts to support financial markets.

The European Central Bank said yesterday it would reintroduce purchases of covered bonds and year-long loans for banks to support markets. The Bank of England boosted its asset- purchase program by more than a third to 275 billion pounds ($425 billion) in a bid to avert a recession in the U.K.

Europe Optimism

“With the slight optimism coming out of Europe, we are seeing some glimmers of what we could expect in the Treasury market if we get some type of reasonable policy response,” said Kevin Flanagan, chief fixed-income strategist in Purchase, New York, at Morgan Stanley Smith Barney.

The Bank of America Treasuries index is down 0.2 percent this week as of yesterday. The company’s index of bonds around the world fell by the same amount.

The MSCI All Country World Index of stocks is bound for a 1.9 percent gain this week.

“Money is going out of bonds and into the stock market,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “Much of the safe-haven investment has been unwound.”

Treasuries surged on Sept. 2, the day of last month’s U.S. employment report, sending 10-year yields down 14 basis points, or 0.14 percentage point. They’ve rallied that much only once since then, when the Fed began its bond-buying program on Oct. 3.