(Bloomberg) — Treasuries rose the most since January after a report showing U.S. employers added fewer jobs than forecast in March eased concern that the Federal Reserve would accelerate the unwinding of monetary stimulus.
Yields on five-year notes dropped the most in two months, widening the gap with 30-year bonds to 1.87 percentage points, or 187 basis points. The yield curve, which investors view as a barometer of growth expectations, had flattened to the least since 2009 last month after the Fed signaled that a strengthening economy may prompt policy makers to raise rates sooner than forecast next year. Hourly wage growth was unchanged last month, indicating few inflationary pressures.
“The market was way out over its skis looking for the big payroll number and the bad price action,” said David Robin, an interest-rate strategist in New York at Newedge USA LLC, an institutional-brokerage firm. “People were overextended and just too short ahead of the report. If you look at the moving average of the payroll data and other measures it shows the Fed isn’t even close — they are like miles away from” tightening policy.
The 10-year yield fell seven basis points, or 0.07 percentage point, to 2.73 percent at 12:28 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.75 percent note due February 2024 rose 19/32 or $5.94 per $1,000 face amount to 100 6/32.
Five-year note yields fell nine basis points to 1.71 percent, touching the biggest drop since Jan. 24, while seven- year note yields declined 10 basis points to 2.29 percent, reaching the largest decline since Jan. 23.
The Bloomberg U.S. Treasury Bond Index has fallen 0.3 percent this week through yesterday.
The difference between yields on five- and 30-year securities rose four basis points, the most on a closing basis since Feb. 7. The gap narrowed to 178 on March 31, the least since October 2009.
“What we’re seeing is a modest relief trade where the belly’s outperforming, having underperformed handsomely over recent days,” said William O’Donnell, head U.S. government-bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, referring to five- and seven-year notes. “A lot of people were looking for a gangbuster number above the consensus of 200,000. It’s not the number a lot of people feared, at least in bond market terms.” Weather change
Colder-than-average U.S. winter weather spawned a debate about how much of the drop-off from last year’s pace of job gains is attributable to a softening in the economy. The economy added 192,000 jobs last month, trailing a median forecast for 200,000, according to a Bloomberg News survey of economists.
“In all likelihood, the Fed’s going to remain accommodative,” said Richard Schlanger, who helps invest $20 billion in fixed-income securities as vice president at Pioneer Investments in Boston. “You have to be encouraged that the hours worked were up; that’s a good sign. The participation rate was up; that’s a good sign.”
The labor force participation rate, which measures the percentage of people actively working or seeking employment, rose to 63.2 percent in March from 63 percent the month before, Labor Department data showed. Weekly hours spent working rose to 34.5 last month from 34.2 in February.