Treasuries declined after a report showed fewer Americans than forecast filed first-time jobless claims last week, pointing to an improving labor market and sapping demand for haven assets.
Benchmark 10-year yields rose from almost four-month lows as the U.S. prepared to auction $29 billion of seven-year debt after auctioning $35 billion of five-year notes yesterday at the lowest yield since November. Applications for jobless benefits decreased by 16,000 to 339,000 in the week ended April 20, the lowest since March 9, according to Labor Department data released in Washington. Volatility in the Treasuries market reached a record low for a third day.
“It’s a period of seasonal volatility -- the market is selling off because it likes the optics of the numbers,” Tom Simons, an economist in New York at Jefferies LLC, one of the 21 primary dealers that trade with the Federal Reserve, said of the jobless-claims numbers.
Benchmark 10-year note yields rose one basis point, or 0.01 percentage point, to 1.72 percent at 11:55 a.m. New York time, according to Bloomberg Bond Trader data. The yield fell to 1.64 percent on April 23, the lowest since Dec. 12. The price of the 2 percent note due February 2023 fell 1/8, ore $2.50 per $1,000 face value, to 102 17/32.
The 30-year bond gained two basis points to 2.91 percent after falling to 2.82 percent on April 23, the lowest since Dec. 11.
Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index fell to a record 49.75 basis points yesterday, below the low of 50.04 basis points reached April 23. The data stretches back to 1988.
The yield on current seven-year notes rose one basis point to 1.14 percent, after dropping to 1.06 percent two days ago, the least since Dec. 12.
The seven-year notes being sold today yielded 1.160 percent in pre-auction trading, down from 1.248 percent at the previous sale of similar-maturity debt on March 28.
“There will be no particular difficulty in finding demand for Treasuries, even with these low yields,” said Michael Markovich, head of global interest-rate research at Credit Suisse Group AG in Zurich. “We have seen some weaker data and that helped bring yields down. We do not expect to see a further strong rally.”
Seven-year notes have gained 1.1 percent this year, compared with a 0.7 percent return by Treasuries of all maturities, according to Bank of America Merrill Lynch indexes. The seven-year securities returned 3.9 percent in 2012, while Treasuries overall advanced 2.2 percent.
The auction is the final of three note sales this week totaling $99 billion.
Bidding has slowed at Treasury auctions this year, with the $702 billion in debt sales attracting an average of $2.98 in orders to buy per dollar of debt sold, compared with a record $3.15 in 2012, data released by the Treasury and compiled by Bloomberg show.
Economists had projected 350,000 jobless claims, according to the median estimate in a Bloomberg survey of 49 economists, with estimates ranging from 340,000 to 370,000. The Labor Department revised the previous week’s figure up to 355,000, from an initially reported 352,000. A spokesman said the claims data typically bounce around this time of year.
“We’re going to be in a period of somewhat soft data for a little while,” said Jefferies’s Simons. “Q3 is when it starts to pick up; the economic data is going to improve a little bit.”
Gross domestic product expanded at an annualized rate of 3 percent in the first quarter after growing 0.4 percent in the final three months of 2012, according to the median forecast of economists surveyed by Bloomberg before the Commerce Department issues the data tomorrow.
Policy makers are on guard for a slowdown in the second quarter after job growth fell to 88,000 in March from 268,000 the previous month. Reports this month showed retail sales dropped in March by the most in nine months, while demand for durable goods slumped.
The Fed is buying $85 billion of Treasury and mortgage debt a month to support the economy by putting downward pressure on borrowing costs. At their meeting last month, several members of the Federal Open Market Committee advocated slowing purchases and stopping them by year-end.
Since then, seven have voiced support for maintaining the current pace, including five who vote on the policy-making panel: Governor Daniel Tarullo, New York Fed President William C. Dudley, James Bullard of St. Louis, Chicago’s Charles Evans and Boston’s Eric Rosengren.
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