Benchmark yields stable as Greek talks drag on

LONDON: US benchmark Treasury yields stabilised in European trade on Thursday as investor edginess over drawn-out Greek debt swap talks was offset by expectations that key jobs data due on Friday could show improvements in the labour market.

A long-delayed Greek deal with private creditors to cut the country's debt pile is nearly wrapped up but the government still needs to secure the backing of the country's political leaders for more austerity measures to secure new funds.

"The main stumbling block seems to be between Greece and the IMF over the final terms but it looks like a deal could be in place tomorrow and certainly early next week," said RIA Capital Markets rate strategist Nick Stamenkovic. "But until we see a deal in place it's going to keep investors pretty nervous and that will give some support to Treasuries."

US T-note futures were last up 7/64 at 132-3/32 while the 10-year T-note yielded 1.83 percent, unchanged from late US trade on Wednesday.

Yields rose in the previous session after the Institute for Supply Management said that its index of US national factory activity rose to 54.1 in January, the strongest growth in seven months. The ADP National Employment Report showed the private sector added 170,000 jobs last month, the smallest gain in three months but in line with forecasts.

Friday's US jobs data will be key in gauging the strength of the recovery in the world's largest economy, with analysts forecasting the labour market will continue to improve moderately.

"The expectation is that yields are going to continue to rally as you move further up the curve as people look for more and more pickup," a trader said. "The street still seems a bit short. So I think the market will rally if non-farm payrolls come in weaker than expected."

The yield on 30-year Treasuries was up marginally at 3.00 percent.

The five-year yield was steady at 0.72 percent , staying near its lowest levels since at least the 1960s.

"We expect the employment report to show the labour market continues to improve, reinforcing our view that the economy is going to post modest growth this year, hence we see little value in Treasuries at these levels," Stamenkovic said.

He sees 10-year yields gravitating to 2.5 percent by the middle of the year.