Treasuries edge lower

US Treasuries prices edged lower on Thursday as unemployment and manufacturing data suggested the economy was picking up steam, but price declines were limited, with most Treasury maturities ending the day unchanged in price. New US claims for unemployment benefits dropped to a 3-1/2-year low last week, the government reported, suggesting the labour market recovery was gaining speed.
Benchmark 10-year Treasury notes traded 2/32 lower in price, their yield rising to 1.92 percent from 1.90 percent late on Wednesday. Early in the day and prior to the release of the data, yields slipped to the lowest level in over two months, at 1.86 percent. The 30-year bond was off 11/32 in price and yielding 2.93 percent, up from a close at 2.91 percent on Wednesday. "We continue to see better-than-expected data from the US ... but the 10-year note (yield) is below 2 percent - there is still a lot of fear going into year-end," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.
Volume was the highest all week, according to CRT Capital Group in Stamford, Connecticut. CRT estimated cash trading volume at 121 percent of the 10-day moving average, with 10-year notes the most active issue. Treasuries have been rallying recently, supported by nervousness over the eurozone sovereign debt crisis, which is still threatening the economies of Spain and Italy, and as investors move to bolster balance sheets by buying low-risk assets heading into year end.
Measures agreed last week by European leaders to build a tighter fiscal union and stronger budget oversight have failed to head off short-term concerns over the currency bloc's ability to withstand the crisis. The demand for safe-haven assets has translated into solid buying in US Treasury auctions so far this week. The Treasury on Thursday afternoon sold $12 billion of five-year Treasury inflation-protected securities at a negative yield. "All the auctions came relatively strong this week," Caron said. "A lot of supply, a lot of demand. The fact that 5-year tips came pretty well is not a surprise."
The Treasury announced it will sell $99 billion of two-year, five-year and seven-year notes next week. Treasuries got some support on Thursday from a large purchaser - the Federal Reserve. The US central bank bought $4.9 billion of Treasuries maturing August 2018 through November 2018 as part of its latest stimulus programme, dubbed "Operation Twist." The program extends the maturity of the central bank's Treasuries holdings in a bid to lower mortgage rates and other long-term borrowing costs.