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Treasuries fall third day amid improving job market

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(Bloomberg) — Treasuries dropped for a third day before government reports today and tomorrow that economists said will show the job market is improving, reducing demand for the safest assets.

U.S. securities extended this week’s decline amid speculation a recovering labor market make it more likely the Federal Reserve will keep trimming bond buying. Federal Reserve Bank of Philadelphia President Charles Plosser, who votes on monetary policy this year, said yesterday he expects the economy to grow enough to warrant a further tapering of debt purchases.

“We are still quite positive on the U.S. economy,” said Vincent Chaigneau, head of fixed-income and foreign-exchange strategy at Société General SA in Paris. “We believe we’ll see better U.S. data again and that will translate into a selloff in Treasuries. We’re leaning to the bearish side.”

The 10-year yield climbed one basis point, or 0.01 percentage point, to 2.68 percent at 6:56 a.m. in New York after rising nine basis points during the previous two days, according to Bloomberg Bond Trader prices. The 2.75 percent note due in November 2023 fell 3/32, or 94 cents per $1,000-face amount, to 100 5/8.

U.S. employers added 183,000 jobs last month, up from 74,000 in December, based on a Bloomberg News survey of economists before tomorrow’s Labor Department report. First-time claims for jobless benefits dropped to 335,000 last week, from 348,000 the week before, a separate survey showed before the figure is released today.

Emerging markets

Treasuries due in 10 years and longer returned 6 percent in January, according to data compiled by Bloomberg, as declines in emerging markets boosted demand for the safest assets.

Currencies including the Polish zloty, the Argentine peso and the Hungarian forint have strengthened more than 1 percent against the dollar this week.

“There are troubles in selected countries, but on the whole, most of them are better placed than they were in previous emerging-market crises,” St. George Bank’s Chan said. “It’s a concern and could keep popping up this year but I don’t think it will escalate significantly.”

Plosser said the world’s largest economy may expand 3 percent in 2014 as the unemployment rate declines to 6.2 percent by year-end.

Policy makers made the first two cuts to asset purchases in December and January to $65 billion a month from $85 billion. While welcoming the decisions, Plosser said they “may prove to be insufficient” if growth keeps accelerating, in a speech yesterday in Rochester, New York. ‘Bad numbers’

Yoshiyuki Suzuki at Fukoku Mutual Life Insurance Co. said Fed tapering has increased demand for the safety of Treasuries as the central bank withdraws stimulus, rather than cutting investor appetite for government debt.

December’s jobs gain, which was less than the most pessimistic projection in a Bloomberg survey, raises concern tomorrow’s figure will also fall short of expectations, said Suzuki, who is the head of fixed income in Tokyo.

“We’ve had some bad numbers,” he said. “People are starting to be much more cautious because of the Fed tapering.” Ten-year yields will hold below 3 percent for the first quarter but will rise above that level by year-end as the economy improves, he said.

‘More cautious’

Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose to $404 billion yesterday, from $366.5 billion the day before. It increased to $494.3 billion on Jan. 29, the most in seven months.

Pablo Salame, co-head of Goldman Sachs Group Inc.’s trading division, said the surprise of 2013 was that Fed tapering didn’t cause any market participants to collapse. Some may not be so lucky when the central bank raises short-term rates, he said.

The “great success” of last year was the Fed’s decision to taper wasn’t dysfunctional to markets, Salame said in a video posted yesterday on New York-based Goldman Sachs’s website. Signs the Fed would curtail its $85 billion of monthly purchases helped push the yield on 10-year Treasuries from as low as 1.61 percent in May to about 3 percent in September.

The odds that policy makers bank will increase their target for overnight lending between banks to at least 0.5 percent by January 2015 are 11.1 percent, based on futures contracts. The Fed has kept its target in a range of zero to 0.25 percent since December 2008.


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