TREASURIES-U.S. 10-year yield up near 3 pct in post-holiday trade

Richard Leong
Thursday, 26 Dec 2013 | 10:33 AM ET

* Benchmark yields hold below 3 percent on light trading

* Other U.S. yields near 3-1/2 month highs

* U.S. jobless claims fell in latest week

NEW YORK, Dec 26 (Reuters) - U.S. benchmark Treasuries yields edged higher on Thursday, just below their two-year high of 3 percent, in light trading as most investors stayed out of the market after the Christmas holiday. The U.S. bond market reopened after being closed on Wednesday, while major European markets stayed shut, keeping volume well below average. Treasuries yields approached peaks set in September after the Federal Reserve said last week it will shrink its monthly purchases of Treasuries and mortgage-backed securities by $10 billion, to $75 billion, in January. If the 10-year Treasury yield, a benchmark for mortgage rates and investment returns, were to rise much above 3 percent, it might be a negative for stocks and other risky assets, analysts said. "Other markets will take notice if we establish a foothold above 3 percent," said Rob Zukowski, senior technical analyst at 4Cast Ltd in New York. Given the thin year-end volume, Zukowski said the few investors who have not closed their books for the year will unlikely make any big trades even if the 10-year yield strays above 3 percent. Moreover, Treasuries prices do not have the support from the Fed's purchases for its third round of quantitative easing. The U.S. central bank will not resume buying U.S. government debt until early 2014. Fed policymakers opted to dial back their bond purchases on signs of economic improvement albeit unemployment has remained relatively high and inflation has been stuck below their 2 percent target. The Labor Department said on Thursday first-time filings for unemployment benefits totaled 338,000 in the week ended Dec. 21, down from an upwardly revised 380,000 the previous week. The larger-than-expected decline supported the view of further improvement in the domestic labor market, but it was not steep enough to alter the notion that job growth is speeding up, boosting economic growth and inflation from current levels.

Benchmark 10-year Treasury notes fell 2/32 in price to yield 2.989 percent, up 0.6 basis point from late on Tuesday. The 10-year yield touched 3 percent overnight, fractionally below the two-year intraday high set on Sept. 6, according to Reuters data. The yield on two-year notes was up 1 basis point at 0.411 percent, which was above its 50-day moving average but still below the intraday high of 0.538 percent in September. Thirty-year bonds fell 7/32 in price, yielding 3.915 percent, up 1 basis point from late on Tuesday. The 30-year yield was less 7 basis points below the two-year high set more than three months ago.