TREASURIES-Yields rise to two-year highs as jobs picture improves
* Yields surge to highest since August 2011
* Fed seen more likely to cut bond purchases in September
* Fed buys $3.767 billion notes due in 2019, 2020
NEW YORK, Aug 15 (Reuters) - U.S. Treasuries yields rose to the highest in two years on Thursday on improvement in the jobs market, boosting expectations that the Federal Reserve is close to paring back its bond purchases. The number of Americans filing new claims for unemployment benefits last week fell near a six-year low, the government said. Bonds have also come under pressure this week as investors who had bet that bonds would improve after last week's supply exited positions, which added to the weakness. The bond market has undergone a sharp selloff since the Fed started talking about paring back its monthly $85 billion in purchases. The benchmark 10-year yield has risen from about 1.6 percent at the start of May to its current 2.80 percent as many investors that had expected low rates to continue were forced to sell. "The data continues to improve and impress the marketplace, and I think the data will continue in this direction, " said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. "Then the question becomes not whether they are going to taper in September, but how much they will taper." Benchmark 10-year notes were last down 21/32 in price to yield 2.792 percent after earlier rising as high as 2.823 percent, the highest since Aug. 1, 2011. Data on Thursday also showed that foreign investors sold long-term U.S. securities for a fifth straight month in June. Treasuries have recently posted record outflows. Overseas investors dumped $40.8 billion in U.S. Treasuries during the month after buying $11.3 billion in May. The data came as stronger U.S. and European data, including higher U.S. July retail sales on Tuesday, boosted sentiment that the global economy is on a more solid footing. Surprisingly strong retail sales in Britain and weak demand for new UK government debt was seen as adding to pressure on Treasuries in early trading before the U.S. data was released.
Other U.S. economy reports on Thursday showed that homebuilder confidence neared an eight-year high in August, consumer prices rose as expected in July and factory activity in the mid-Atlantic region weakend in August from a multiyear high the prior month. Investors are closely focused on economic releases for signals over whether growth will support expectations that the Fed will begin to pare its monthly $85 billion in purchases in September. A Reuters poll released on Wednesday showed a majority of economists expect the Fed to reduce bond purchases at its Sept. 17-18 policy meeting, with a consensus expecting that the central bank would reduce purchases by $15 billion initially.
Thirty-year bonds fell 1-2/32 in price to yield 3.813 percent, after earlier rising to 3.838 percent, the highest since August 8, 2011. The Fed bought $3.767 billion in notes due 2019 and 2020 on Thursday as part of its ongoing purchase program. Investors will next focus on the release of the minutes from the Fed's July meeting next Wednesday for signs over the timing of any cuts in the buybacks. The most important data before the Fed's September meeting, however, will be August's employment report that is due on Sept. 6. Any unexpected weakness in that number could derail expectations of tapering. "This particular payrolls print has been relatively weak on average for the past three years, falling about 30,000 to 40,000 jobs relative to the prior month. If that seasonal trend holds out, it could create some uncertainty about the Fed's near-term policy path," said Jake Lowery, a portfolio manager at ING Investment Management in Atlanta, Georgia. "We would expect trading on that day to be unusually reactive to that number," he added. The Treasury said on Thursday that it will sell $16 billion in a five-year repoening of Treasuries Inflation-Protected Securities next Thursday.