U.S. Treasury Note Investors Grow More Bearish Before November Jobs Report

Note the flattening yield curve and prospects for more rate hikes.

Nov. 29 (Bloomberg) -- U.S. Treasury note investors became more bearish last week on speculation a government report will show November employment improved enough to keep the Federal Reserve from slowing the pace of interest rate increases.

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``November's payrolls report is the biggest market-moving data that we'll see between now and the end of the year,'' said Gerald Lucas, head of U.S. Treasury strategy in New York at Banc of America Securities LLC. ``The Fed is on a tightening mode and we would need a shockingly bad report to demote them from raising interest rates.''

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The combination of Fed rate increases and tame inflation narrowed the gap in yields between two- and 10-year notes to 1.18 percentage points last week, the slimmest margin since September 2001. The difference was 1.97 percent in June when the Fed started to raise the target rate from 1 percent.

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Demand for Treasuries may also weaken on concern foreign central banks and investors will cut their holdings of the U.S. securities as the dollar falls.

Bloomberg

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