Treasuries decline

US Treasuries are likely to take their direction from inflation data released early on Friday, though increasing concerns about the strength of US economic growth may keep yields under their recent highs. Bonds ended weaker on Thursday after gaining in morning trade on an unexpected jump in the number of newly jobless in the United States during the latest week.
A decline in the number of investors that had bet yields would rise was behind afternoon weakness as the need to cover these positions had boosted prices in recent sessions, traders said. "I think people are done short covering. Now you have to find levels where new buyers will come in, which is probably in the higher half of the yield range," said Jim Golden, head of Treasury trading at Jefferies & Co in New York.
Benchmark 10-year notes yields have been largely rangebound between around 3.42 percent and 3.58 percent as investors try to evaluate how fast the Federal Reserve will move to raise interest rates. The debt, which last traded at yields of 3.49 percent, has been supported this week by concerns US growth will slow as high food and energy prices hurts consumer and business spending.
"I don't think you can say we are just automatically headed to higher rates, if high commodity prices start choking off business profitability and consumer spending that changes the whole dynamic of the economy," said Golden. Consumer price inflation numbers scheduled for Friday will now be closely watched for signs inflation may be rising faster than the Fed may expect.
"If core CPI prints at 0.2 percent for the third month in a row it could be a little worrying," said Igor Cashyn, interest rate strategist at Morgan Stanley in New York. "If that's reoccurring it definitely makes it harder for the Fed to argue there has been low inflation."
A higher than expected number on Friday would likely hurt bonds as investors price for interest rate hikes sooner. Bonds could alternatively be boosted if a high number increases fears over the impact of inflation on the economy. James Barnes, senior fixed income portfolio manager at National Penn Investors Trust Company in Reading, Pennsylvania, sees the bond market as pricing in too aggressive assumptions for growth and inflation.