Treasuries Erase Losses as Jobless Claims Climb to 5-Week High

  • Payrolls data Friday forecast to show employment strength
  • U.S. 10-year yield holds at lowest level in two weeks

Treasuries fluctuated, erasing earlier losses, after data showed U.S. jobless claims rose to the highest level in five weeks.

The benchmark 10-year note yield was little changed at the lowest level in two weeks. Traders are awaiting further insight into the state of the labor market from the monthly payrolls report on Friday. 

"We’ve had a nice rally," said David Ader, head of government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. "We’ve got some event risk tomorrow. The market is pretty rich in here. If we back up, we’ll find good support."

Federal Reserve Bank of Minneapolis President Neel Kashkari said late Wednesday that officials want to normalize interest rates and are waiting for the data to allow this. He said he forecasts continued moderate economic growth in the U.S. Traders are assigning a 10 percent chance of an increase in rates at the next Fed meeting in June.

The yield on the Treasury 10-year note was 1.77 percent at 12:03 p.m. New York time, the lowest on a closing basis since April 18, according to Bloomberg Bond Trader data. It declined 10 basis points in the previous two days. The price of the 1.625 percent note due in February 2026 was 98 23/32.

Jobless Claims

Initial claims for unemployment benefits rose more than forecast to 274,000 in the week ending April 30, from 257,000 the previous week, a Labor Department report showed Thursday. Earlier in April claims were at 248,000, the fewest since 1973. Friday’s payrolls data are projected to show a 200,000-worker increase for April, from 215,000 in March.

The probability the Fed will follow its December rate increase with another in 2016 has dropped to 51 percent from a 93 percent chance assigned at the start of the year, futures contracts indicate.

“We continue to have the rhetoric of the Fed saying they want to have rates higher,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “Regardless of what they say, the market is saying the likelihood of them going in the very near-term is diminished. We need an outlying number tomorrow for payrolls for it to have too much consequence on the market.”

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