Bonds

Bonds Ease as Dow Pushes Past 13,000, S&P Breaks 1,400

Reuters
Watch Berkshire

Treasury debt prices eased Thursday as soaring stocks squashed the safe-haven bid for government debt and investors raised their expectations the Federal Reserve will pause in its interest-rate cutting campaign.

Stocks rallied in part because a stronger dollar eased some worries about high energy costs and price inflation.

"It's just the up-trade in equities," Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson in Seattle, said of the weaker bond prices.

The benchmark 10-year Treasury note was trading 10/32 lower in price for a yield of 3.78 percent from 3.73 percent late Wednesday, while the 2-year Treasury note traded 5/32 lower in price for a yield of 2.36 percent from 2.27 percent.

The rise in 2-year yields pushed the spread between those yields and the target federal funds rate to about 27 basis points, close to the 10-year average of that spread of near 25 basis points.

The Fed on Wednesday cut the target federal funds rate by 25 basis points to 2.00 percent and released a policy statement that had many analysts thinking the central bank will hold off on further cuts for the time being, though it could loosen monetary policy further down the road.

"The world believes that the Fed is done and all reversals are kicking in ... bonds are now selling off," said Andrew Brenner, senior vice president at MF Global in New York.

The market largely shrugged off reports showing US personal spending rose more than expected in March, along with slightly stronger-than-expected manufacturing activity in April and a steeper-than-expected decline in construction spending in March.

Bond prices rose early in the day after data showed the number of U.S. workers filing for initial unemployment benefits rose to a seasonally adjusted 380,000 in the week ended April 26, above the average of analysts' forecasts of 360,000.

The higher-than-expected number had analysts thinking Friday's April non-farm payrolls number could bring more bad news on the economy. (Get a rundown of the day's economic news here.)

"We are still going to have elevated jobless claims numbers here for a while," said Adam York, economic analyst at Wachovia Securities in Charlotte, N.C. He added that "the labor market is going to have some weakness this year and we expect non-farm payrolls losses on average for the rest of the year."

The average of forecasts from analysts polled by Reuters is for non-farm payrolls to have shrunk by 80,000 jobs last month after a contraction of 80,000 in March.

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