Oct. 2 (Bloomberg) -- Treasuries gained, pushing 10-year note yields toward a seven-week low, after a report by ADP Research Institute showed companies in the U.S. added fewer jobs than forecast in September, adding to demand for refuge.
Bonds advanced earlier as the partial shutdown of the U.S. government showed no signs of ending quickly. The first day ended with no talks scheduled between the White House and Congress, making it more likely the standoff will merge with a debate over raising the federal debt ceiling. Treasury Secretary Jacob J. Lew said the U.S. has begun using the last measures available to avoid breaching the limit.
"This number came in a bit below expectations, which is precipitating a bit of a rally in Treasuries," said Christopher Sullivan, who oversees $2.2 billion as chief investment officer at United Nations Federal Credit Union in New York. "Employment growth has been deteriorating a bit, and this is another confirmation of that idea."
The benchmark 10-year yield fell two basis points, or 0.02 percentage point, to 2.63 percent at 9:26 a.m. New York time, according to Bloomberg Bond Trader prices. The price of the 2.5 percent note due in August 2023 rose 6/32, or $1.88 per $1,000 face amount, to 98 29/32. The yield dropped to as low as 2.60 percent after falling on Sept. 30 to 2.59 percent, the least since Aug. 12.
Rates on Treasury bills that mature Oct. 24 decreased to 0.055 percent today, from 0.075 percent yesterday and negative 0.01 on Sept. 27. Two years ago, one-month bills climbed to a 29-month high of 0.18 percent as the Aug. 2, 2011, deadline set by Treasury to avoid a default approached.
Three-month Treasury bill rates fell to 0.0051 percent from 0.0152 percent yesterday. They reached negative 0.0101 percent on Sept. 27, the lowest level this year. The 2013 average is 0.048 percent.
Treasury price swings as measured by the Merrill Lynch Option Volatility Estimate Index jumped 9 percent yesterday, the biggest increase since Aug. 16. The gauge advanced for a fifth day, the longest run of increases in four weeks. The index was at 87.37, versus the average of 69.07 for the past year.
U.S. government securities lost 2.5 percent this year through yesterday, according to the Bloomberg U.S. Treasury Bond Index, reflecting speculation the Federal Reserve is planning to reduce its $85 billion in monthly bond purchases as the world’s biggest economy improves.
Treasuries fell yesterday, with 10-year yields increasing four basis points to 2.65 percent, on speculation the government shutdown might end soon enough for lawmakers to work on extending the federal debt limit.
"The sentiment that this would only last a couple of days is dwindling," said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based institutional-investors brokerage. "I don’t think people are optimistic about a deal getting done in the next day or two."
Lew, in a letter to House Speaker John Boehner yesterday, repeated the debt measures will be exhausted no later than Oct. 17 and urged Congress to extend the nation’s borrowing authority immediately.
Once they run out, "we will be left to meet our country’s commitments at that time with only approximately $30 billion," he wrote. "This amount would be far short of net expenditures on certain days, which can be as high as $60 billion."
Credit-default swaps on U.S. Treasuries fell as trading of contracts insuring against losses on the nation’s debt jumped.
Five-year swaps fell two basis points to 33 basis points, after reaching a five-month high of 34 on Sept. 30, according to data compiled by Bloomberg. The contracts were the 15th most traded of 1,000 entities tracked by the Depository Trust & Clearing Corp. in the week through Sept. 27, up from 147th the previous period.
Treasuries extended gains after Roseland, New Jersey-based ADP Research reported companies in the U.S. boosted payrolls by 166,000 in September. The median forecast of 40 economists surveyed by Bloomberg called for an advance of 180,000.
The Labor Department won’t issue its monthly nonfarm employment report if the government is closed Oct. 4, the scheduled release date, an Obama administration official said earlier this week.
The monthly report is forecast to show U.S. payrolls expanded by 180,000 workers last month, according to economists in a Bloomberg survey. That would be the biggest gain in five months. The unemployment rate held at 7.3 percent, economists projected.
Data on U.S. jobless-benefit claims for the week ended Sept. 28 will be released as scheduled tomorrow, a Labor Department spokesman said yesterday in an e-mail.
The U.S. shutdown is fueling speculation the Federal Open Market Committee will delay tapering its bond buying. The Fed is scheduled to purchase as much as $4 billion today of Treasuries due from July 2019 to September 2020 as part of the program.
"Yields will go down a bit," said Allen Lei, a trader of Treasuries in Taipei at Hontai Life Insurance Co., which oversees the equivalent of $6.2 billion. "The shutdown will have some negative impact on the economy."
Lei said he bought 30-year Treasuries yesterday at 3.72 percent. The yield traded today at 3.7 percent.
--Editors: Greg Storey, Paul Cox
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