Wires

TREASURIES-Prices fall before 30-year bond auction

Share

* Jobless claims fall to lowest in over 4 years

* U.S. to sell $13 billion in 30-year bonds

* Rating cut on Spain cushions bonds' price drop

* Fed buys $1.25 billion TIPS for Operation Twist

(Updates market action, adds new quote)

By Richard Leong

NEW YORK, Oct 11 (Reuters) - U.S. Treasuries prices fell onThursday as traders sought to lower prices before a $13 billionauction of 30-year supply and a drop in jobless claims reducedsafe-haven demand for bonds.

First-time filings for unemployment benefits unexpectedlyfell to their lowest since February 2008, but the governmentsaid one-time factors likely caused the steep 30,000 drop inweekly claims.

"This suggests some improvement in the labor market,"fueling selling in Treasuries, said David Keeble, global head ofinterest rate strategy at Credit Agricole Corporate & InvestmentBank in New York.

The Federal Reserve embarked on a third round of large-scalebond purchases nearly a month ago in a bid to further reduceunemployment. The Labor Department's September employment reportshowed a surprise drop in the jobless rate to 7.8 percent, thelowest since January 2009.

However, persistent worries about the euro zone's debttroubles capped the decline in Treasury debt prices. Standard &Poor's downgraded Spain's rating to BBB-minus, a step above junkstatus, late Wednesday, citing the country's worsening economyand limited options to manage its fiscal woes.

Spain's borrowing costs turned lower after rising earlier onThursday. The Spanish 10-year yield

was last 5.78percent after touching 5.94 percent, not far from 6 percent, alevel seen as unsustainable for euro zone's fourth biggesteconomy.

Some analysts, however, said the rating cut added pressureon Spanish Prime Minister Mariano Rajoy to request a bailout, astep that would lessen Spain's drag on the region's financialmalaise.

A bailout request could remove "Spain as an issue off thetable for the bond market," said Jim Vogel, interest ratestrategist at FTN Financial in Memphis, Tennessee.

The U.S. Treasury Department will complete this week's $66billion worth of coupon debt offerings with its sale of 30-yearbonds at 1 p.m. (1700 GMT).

Analysts were uncertain about the outcome of the 30-yearbond sale after the strong demand at the three-year and 10-yearauctions the previous two days. They attributed the strong bidsto nervous investors piling into less risky government debt andplayers buying Treasuries to exit short positions.

In the "when-issued" market, traders expected the reopeningof the 30-year issue originally sold in August to sell at ayield of 2.906 percent

. The 30-year auction inSeptember fetched a yield of 2.896 percent.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphics:Euro debt crisis:U.S. jobless claims:U.S. trade deficits:U.S. import prices:

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Meanwhile, the Federal Reserve purchased $1.25 billion inTreasury Inflation Protected Securities under its OperationTwist. This program involves selling shorter-dated Treasuriesand purchasing longer-dated issues in a bid to hold downlong-term borrowing costs to bolster the economy.

The U.S. Treasury said on Thursday it will reopen a 30-yearTIPS issue by $7 billion on Oct 11.

On the open market, regular 10-year Treasury notes

were 9/32 lower in price, yielding 1.709 percent, up2.6 basis points from late on Wednesday.

Thirty-year bonds

fell 12/32 in price afterflirting with a near 1 point drop earlier. The 30-year yield waslast 2.904 percent, up 2 basis points from Wednesday and morethan 3 basis points below its 200-day moving average, a keychart support for this maturity, according to Reuters data.

Treasuries might be safe vehicles to park cash until thereis progress with the debt problems in Europe and U.S. lawmakersdeal with expiration of major tax breaks and automatic spendingcuts at year-end -- referred to as "the fiscal cliff," analystsand investors said.

"We are bouncing around in a range here. This is a goodentry here," said Matt Duch, portfolio manager at CalvertInvestment Management in Bethesda, Maryland, which overseesabout $12 billion in assets.

(Editing by Kenneth Barry)

((richard.leong@thomsonreuters.com)(+1 646 303 6313)(ReutersMessaging: richard.leong.thomsonreuters.com@thomsonreuters.net))

((-------MARKET SNAPSHOT AT 11:34 a.m. EDT (1534 GMT)-------Dec T-Bond148-11/32 (-12/32)Dec 10-Year note133 (-07/32)Change vs CurrentNyk yieldThree-month bills0.095 (-0.01) 0.097Six-month bills0.1475 (+0.00) 0.150Two-year note99-31/32 (-) 0.270Five-year note99-23/32 (-04/32) 0.68110-year note99-07/32 (-09/32) 1.71230-year bond96-29/32 (-13/32) 2.906DOLLAR SWAP SPREADSLAST ChangeU.S. 2-year dollar swap spread 11.75 (-0.25)U.S. 3-year dollar swap spread 11.00 (unch)U.S. 5-year dollar swap spread 12.50 (-0.50)U.S. 10-year dollar swap spread 4.50 (-0.75)

U.S. 30-year dollar swap spread -23.00 (-0.75)))

Keywords: MARKETS USA BONDS/