NEW YORK: US Treasury prices fell on Thursday, undermined by aggressive expansionary monetary policy measures from the European Central Bank, including a cut in benchmark interest rates to fresh record lows that negatively impacted inflation sensitive assets.
"One of the main reasons we are down here is because of Europe. The fact that the ECB is taking aggressive action to tackle its own maladies is likely to help risk markets in the U.S. such as equities and hurt bond markets," said Aaron Kohli, interest rate strategist at BNP Paribas in New York.
Kohli also pointed toward a calendar full of upcoming new issuance by U.S. corporate and government debt for some portion of the weakness.
Benchmark 10-year U.S. Treasuries traded down 4/32 of a point in price, lifting the yield which moves in the opposite direction to 2.42 percent. The 30-year Treasury was off more than half a point in price, pushing the yield up to 3.19 percent.
A mixed bag of U.S. economic data briefly helped lift Treasury prices. Much of the focus was on weaker-than-forecast private sector jobs data for August that comes ahead of Friday's key U.S. employment report
Payrolls processor ADP's National Employment Report showed a smaller-than-expected increase in the number of new jobs added in August at 204,000 versus a Reuters poll of economists expecting a 220,000 increase. It was however the fifth straight month of private sector employment gains above 200,000, and the increase in payrolls was broad-based.
The European Central Bank cut interest rates unexpectedly to a new record low of 0.05 percent from 0.15 percent in an effort to boost inflation and spur a stagnating euro zone economy.
But ECB President Mario Draghi, cognizant of a flatlining euro zone economy in the second quarter and the Ukraine crisis weighing heavily on business confidence, unveiled "unconventional instruments" for boosting growth.
These measures include plans for an asset-backed securities (ABS) and covered bond purchases to help ease credit conditions in the bloc. Sources told Reuters it could amount to 500 billion euros ($650 billion) over three years.
"I guess the ECB is the predominant influence on Treasuries, but it is one of several," noted David Ader, head of government bond strategy at CRT Capital in Stamford, Connecticut.
"When you have seen the Fed do its quantitative easing episodes, Treasuries sold off. They rallied into the decision and then on the announcement they sold off because they delivered. The ECB delivered and that is deemed to be seen as either expansionary, inflationary or both and sovereign's may now underperform because of that excitement," said Ader.
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