US bonds gain on economic worries

US Treasury debt prices rose on Thursday for a sixth straight session, as a surge in weekly claims for jobless benefits intensified worries over a faltering economic recovery. A drop in stocks and commodities prices also had investors buying into the lower risk of US government debt, and most Treasuries prices revisited levels not seen since mid-March when a devastating earthquake and tsunami ravaged Japan.
The recent jump in US jobless benefit claims, due partly to seasonal factors, is the latest evidence that economic growth in the world's largest economy may be slowing. Forecasts for above-trend US growth in 2011 are starting to be cut and bets on when the Federal Reserve will tighten monetary policy are seen being revised. "Over the last couple of weeks we really have not gotten tremendously encouraging economic data," said Thomas Simons, money market economist with Jefferies & Co in New York.
Benchmark 10-year Treasury notes traded 15/32 higher in price with the yield dipping to 3.16 percent from 3.22 percent late on Wednesday. Yields reached down to 3.15 percent during the afternoon, marking the lowest since mid March and below the 3.17 percent key retracement level established during the uptrend from October 2010 to February. Market gains were said to be somewhat limited however by investor reticence to make big bets ahead of the US government's jobs report on Friday, while technical signals suggest bonds are overbought.
"Treasuries rallied on the highly unexpected jump in claims but strong levels are keeping many hesitant ahead of the all-important non-farm payroll print," said Gennadiy Goldberg, fixed-income analyst at 4Cast Inc in New York. The 30-year bond traded 31/32 higher in price with a yield of 4.27 percent, the lowest since early January and down from 4.33 percent late on Wednesday.
The spread between two-year and 10-year yields shrank to 2.58 percentage points, the smallest since early December, signalling investor expectations of slowing US growth. Strong bids for Treasuries stemmed from reduced expectations the United States could produce enough jobs and demand to generate above-trend 4.0 percent economic growth this year. The US 10-year Treasury inflation-protected securities (TIPS) breakeven rate was on track for its biggest one-day drop since early November, as a 10 percent plunge in US oil prices to below $100 per barrel reduced inflation worries.