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U.S. 10-year yields fall to record low under 1.50%
Data give Fed cover to buy more bonds, CRT says
By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) — Treasury prices jumped on Friday, pushing yields on major benchmark indexes down to record lows, after a report showed the U.S. economy added far fewer jobs in May than expected, spooking investors that a U.S. slowdown may be in the cards.

Yields on 10-year notes /quotes/zigman/4868283/delayed 10_YEAR +0.14% , which move inversely to prices, dropped 10 basis points to 1.46% — setting a new low of 1.44% intraday.

A basis point is one one-hundredth of a percentage point.

Click to Play European markets fallEuropean stocks fell, Spanish bond yields moved higher and German bund yields hit record lows in a flight to safety. Photo: Reuters

Thirty-year bond yields decreased 12 basis points /quotes/zigman/4868063/delayed 30_YEAR 0.00% to a record low 2.53%. They fell to 2.50% intraday.

Yields on 5-year notes /quotes/zigman/4868109/delayed 5_YEAR 0.00% fell 4 basis points to 0.62%, also hitting their lowest level ever after the jobs report.

The Labor Department said only 69,000 jobs were created in May, less than half the median estimate of economists. The number of jobs added in the prior two months were revised lower, and the unemployment rate unexpectedly edged up. Read about U.S. payrolls report.

Bonds were up before the report following weak economic data out of Europe and China.

“The outlook for global growth has declined and it seems like everyday the news continues to get worse,” said Gary Pollack, head of fixed-income trading at Deutsche Bank’s private-wealth-management unit. “There hasn’t been any real policy response out of Europe and that’s causing a lot of people to panic, so they’re going from risky assets to safer assets, no matter what the yields are.”

A separate report showed Americans’ spending rose faster than their incomes in April, cutting into the savings rate — which economists consider an unsustainable way to foster economic growth. The data include the Federal Reserve’s preferred measure of inflation, the personal consumption expenditure index, which was flat for the month. See more on spending, PCE.

Traders speculated that the data could raise the likelihood that the Fed takes steps to loosen monetary policy further and add liquidity to the financial system in the hopes that it will foster more growth in the economy. The Fed’s bond-purchase program, known as Operation Twist, is scheduled to end this month.

“The combined spending, inflation, and employment profile now gives the Fed plenty of cover for additional [quantitative easing] — or at least an extension of Operation Twist,” said Ian Lyngen, a government bond strategist at CRT Capital Group.

Also, the Institute for Supply Management’s index on the U.S. manufacturing sector showed the industry expanded at a slower pace than expected in May. Read about ISM.

Ten-year yields fell for a fifth day, down from a week ago by the most since September.

After yields rose slightly last week, the drop is the 10th week in 11, after what was a highly unusual run of weekly declines.

In May, Treasurys staged a strong rally after a Greek election left no party with a majority, requiring new elections in June. Also Spain’s yields jumped and its banking problems deepened, prompting investors to seek the relative safety of U.S. government debt. Read more on Treasurys in May.

Ten-year yields dropped 33.6 basis points last month, following a large drop in April. It was the biggest decline since September, back when markets also had very little confidence in the willingness of European politicians and monetary-policy officials to take the steps necessary to rein in their sovereign-debt problems. The Fed announced Operation Twist in September.

Thirty-year yields fell 44 basis points last month, also a second monthly decline and the most in eight months.
/quotes/zigman/4868283/delayed Add to portfolio 10_YEAR 10 Year Treasury Note US : ICAP Sovereign Debt 1.46 +0.0020 +0.14% Volume: 0.00June 1, 2012 5:30p
/quotes/zigman/4868063/delayed Add to portfolio 30_YEAR 30 Year Treasury Bond US : ICAP Sovereign Debt 2.52 0.00 0.00% Volume: 0.00June 1, 2012 5:30p
/quotes/zigman/4868109/delayed Add to portfolio 5_YEAR 5 Year Treasury Note US : ICAP Sovereign Debt 0.62 0.00 0.00% Volume: 0.00June 1, 2012 5:30p

Deborah Levine is a MarketWatch reporter, based in New York.

http://www.marketwatch.com/story/us-bond-yields-hit-new-lows-after-weak-payrolls-2012-06-01?siteid=bigcharts&dist=bigcharts