Treasury debt prices were little changed Thursday absent a strong directional clue from U.S. stock futures, but supported by a persistent safe haven bid on concerns about the banking system and weaker than expected jobless claims data.
Benchmark U.S. government securities yields, which move inversely to their prices, traded near two month lows as investors' palpable concerns about high stress in lending markets stayed at the fore.
Yields of the very safest U.S. government securities, ultra short-dated Treasury bills, were near their lowest levels in more than five decades hit on Wednesday as investors stampeding out of falling commodities and stocks parked assets there.
Longer maturity Treasuries also stand to gain if the fall in energy prices persists and alleviates inflation concerns, analysts said.
"Those who would not invest in stocks had several havens: Treasuries, commodities and shorting the dollar. It would appear we are in a correction now for dollar weakness and gold and oil are making pretty big retreats here. That will only increase the bid it seems to me for Treasuries," said David Dietze, chief investment strategist at Point View Financial Services, Summit, New Jersey.
Commodities continued plunging on Thursday, as U.S. crude oil futures dropped below $100 per barrel and gold fell in sight of the $900 per ounce mark.
"One of the big fears for fixed-income investors is inflation," and the fall in commodities creates "just a little less concern about inflation," Dietze said.
Weekly initial U.S. jobless claims rose to 378,000, above economists' forecasts for 360,000.
Noting the steady rise in continuing claims, Beth Malloy, bond market analyst with research company Briefing.com in Chicago added that: "The 10-year Treasury note has pared losses not mainly because of claims, but because we have a shortened week and because of the safe haven bid."
The benchmark 10-year Treasury note's price, which moves inversely to its yield, edged down 1/32 for a yield of 3.33 percent, versus 3.33 percent late Wednesday.
U.S. short term interest rate futures showed about a 76 percent chance the Federal Reserve would cut interest rates 50 basis points by its late April policy-setting meeting, up from about a 64 percent chance before the data.
The 2-year Treasury note's price was down 2/32 for a yield of 1.51 percent, versus 1.47 percent late Wednesday.
Bond investors were also waiting to see how hefty banks' direct borrowing from the Federal Reserve via the discount window has been in the week ending Wednesday: one key gauge of the banking system's needs for extra cash to shore up balance sheets depleted by the credit market crisis.
The weekly data is scheduled for release at 4:30 p.m.
"We are coming up on a three day weekend. People remember what happened last weekend," with the near collapse and rescue of Bear Stearns, the fifth biggest U.S. investment bank, said Dietze.
"One of the large players in investment banking hit the windshield last weekend, and was only salvaged through intervention by the Federal Reserve," he said. "Will there be another sad story revealed? That is keeping risk aversion very high and a very strong bid for Treasuries."