US Bonds Slip Late as Dollar Jumps vs Yen

Source: Federal Reserve | Flickr

U.S. Treasury debt prices dipped slightly on Thursday, easing late after the dollar jumped to a four-year high against the Japanese yen, breaking through the key 100-yen mark and spurring selling in longer-dated government debt.

Despite early gains after buying from overseas investors compounded by a well-received auction of 30-year bonds, Treasurys pared that advance as stronger-than-expected U.S. jobless claims data boosted hopes the economy was gathering steam.

The figures on jobless claims released early on Thursday added to last Friday's dip in the unemployment rate, the combination of which suggested the beleaguered U.S. labor market could be finding traction.

Still, Treasurys saw choppy trading most of the day, and analysts say yields could stay rangebound for a while yet, especially as investors are tempted to pause a rally in riskier assets.

Investors are "expecting maybe it's time for equities to correct," said Dimitri Delis, interest-rate strategist at BMO Capital Markets in Chicago, citing the oft-heard expression "sell in May, go away."

Wall Street stock indexes have hit a series of record highs recently, fueling speculation that a correction could be in the offing. That, in turn, may fuel demand for safe-haven Treasurys.

In addition, investors are also trying to gauge when the U.S. Federal Reserve could pare its $85 billion per month in Treasury and mortgage-backed securities purchases, a bid to support the economy and boost employment.

Philadelphia Fed President Charles Plosser early on Thursday repeated his desire to see the Fed slow those purchases and begin an exit to its massive easing program.

The U.S. 10-year Treasury note slipped 2/32 to yield 1.814 percent. The U.S. 30-year bond traded down 6/32 to yield 2.996 percent from 2.987 percent late on Wednesday.

The U.S. Treasury sold $16 billion of 30-year bonds at a high yield of 2.980 percent on Thursday, slightly lower than the 2.988 percent the market had expected.

Prices had advanced before the auction, in contrast to usual efforts to push for price concessions ahead of debt sales.

"I think a lot of people had been short Treasurys, so this was a good point to cover into the auction," said Matthew Duch, portfolio manager at Calvert Investment Management, Inc in Bethesda, Maryland.

Nomura's U.S. rates strategy team called the auction "solid" in a note to clients, highlighting the demand statistics and the lower-than-expected yield.

Treasurys have been rangebound recently on mixed data. Even as recent jobs data have suggested a gathering recovery, some other disappointing indicators have tempered hopes for growth this year.

Initial claims for state unemployment benefits fell 4,000 last week to a seasonally adjusted 323,000 - the lowest level since January 2008. The third straight weekly decline in claims pushed them further below the 350,000 mark, which economists normally associate with a firming labor market.

"The data signals fewer layoffs in April, a quicker pace of labor market recovery, and a lower national unemployment rate," said Stone & McCarthy Research Associates economic analyst Doug Brain in Princeton, New Jersey.

Still, analysts cautioned that prices remain vulnerable if more data disappoint.

"If the data next week comes in weak relative to expectations and the inflation data comes in below consensus, we could see the long-end rally 15 basis points," said Thomas Simons, a money market economist with Jefferies & Co in New York.