Treasuries Fall as Jobless Claims Drop, Oil Near Five-Month High

  • Longest run of losses for 10-year notes since November
  • Crude prices retreat after touching highest since November

Treasuries declined for a fourth day, with benchmark 10-year notes headed for their longest run of losses since November, after a report showing tumbling jobless claims damped demand for the safest assets.

U.S. debt fell along with its German and U.K. peers as crude-oil prices touched the highest in almost five months before retreating. Yields remained higher after Labor Department data showed jobless claims unexpectedly fell to the lowest since 1973 while the number of Americans already receiving benefits dropped to a more than 15-year low.

Crude oil’s rally from a 12-year low in February has pushed bond yields higher and fanned expectations that the inflation rate will rise toward the Federal Reserve’s 2 percent target. Thursday’s rosier employment picture prompted traders to add to wagers that the Fed will tighten U.S. policy this year, even as the European Central Bank on Thursday left its benchmark interest rate at zero and maintained its pace of asset purchases.

“The broader theme over the past several weeks has been the strong performance of risk assets -- a trend that has simply been accelerated by dovish global central banks and, more recently, oil,” said Gennadiy Goldberg, a New York-based interest-rate strategist for TD Securities (USA) LLC. “Treasury yields are adjusting to the stronger risk-on theme.”

The benchmark Treasury 10-year note yield rose two basis points, or 0.02 percentage point, to 1.86 percent as of 5 p.m. New York time. Yields have climbed 11 basis points this week. The price of the 1.625 percent security due in February 2026 fell 1/8, or $1.25 per $1,000 face amount, to 97 7/8.

TIPS Auction

The gap between yields on U.S. five-year notes and equivalent Treasury Inflation-Protected Securities, known as the break-even rate, climbed after the U.S. sold $16 billion in five-year TIPS at a yield of negative 0.195 percent. The rate, a gauge of inflation expectations, advanced for a third day, rising two basis points to 1.51 percentage points. It fell in February to 0.95 percentage point, the lowest since 2009.

“Investors look to add TIPS either because they expect actual inflation to go higher, or they think projected inflation will go higher,” said Boris Rjavinski, a rates strategist at Wells Fargo Securities LLC in New York, one of 23 primary dealers that trade with the Fed. “Actual inflation is running above five-year break-evens, so arguably there is a decent margin of error there for the buyers."

The core consumer-price index rose at a 2.2 percent annual rate in March, according to a Labor Department report April 14.

Bonds fell even after Philadelphia Fed data showed a weaker-than-expected business outlook in April.

Futures traders assign a 63 percent probability that the Fed will raise rates this year, up from a 50 percent chance seen at the start of this week. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.

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