NEW YORK: US Treasuries prices rose on Thursday after the nation's economy grew less than forecast, illustrating the Federal Reserve's rationale to keep interest rates low.
The nation's growth rate dropped to 1.8 percent in the first three months of 2011 from 3.1 percent in the previous quarter as weak government and consumer spending held back growth.
Separately, new claims for jobless benefits jumped to 429,000 last week, higher than the 392,000 Reuters consensus forecast.
The data followed comments by US Federal Reserve Chairman Ben Bernanke on Wednesday that signaled the central bank is in no rush to scale back support for the economy with the labor market still in a ‘very, very deep hole’.
‘The timeliest of timely indicators, initial unemployment claims, are going the wrong way,’ said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.
‘At the moment we regard the rise as technical, but we need to see initial unemployment claims fall sharply below 400,000 in upcoming weeks to make sure the economy is not slowing due to latest headwind of higher gasoline prices.’
Benchmark 10-year notes were up 15/32, their yields easing to 3.31 percent from 3.36 percent on Wednesday.
‘The market is improving and testing nearest technical resistance with 5s-10s leading the charge,’ said David Ader, senior government bond strategist at CRT Capital.
Traders said major resistance for 10-years lay at 3.25 percent.
‘The recent rebound in Treasury prices has taken 10-year notes back toward major resistance near 3.25 percent,’ said William O'Donnell, head of US Treasury Strategy at RBS Securities in Stamford, Connecticut, in a research note.
But he said the market was also moving into short-term ‘overbought’ territory and that portfolios appear ‘less short’ than they've been in recent weeks.
‘Reducing long exposure here is recommended,’ he said. ‘We see buyers above 3.50 percent in 10-years and major resistance at 3.25 percent.’
The main remaining feature of the trading session is the Treasury's $29 billion seven-year note auction at 1 p.m. (1700 GMT). Seven-year notes yielded 2.6850 percent, less than the high yield of 2.88 percent at the March auction.
The seven-year yield has ranged between 2.60 percent and 3 percent since early December, briefly pushing as high as 3.13 percent in February and as low as 2.52 percent in March.
The seven-year maturity has lately proved popular wtih foreign and domestic investors, analysts said. Also, Federal Reserve Chairman Ben Bernanke's news conference on Wednesday, which added a note of uncertainty to the two- and five-year auctions conducted on Tuesday and Wednesday, is now over, removing that variable from the auction outlook.
Month-end demand is unlikely to be a large factor for the auction today, said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
‘The 0.8-year estimated extension in the Barclays Treasury index is fairly moderate and isn't likely to influence demand for the auction one way or the other,’ he said.
‘Also, there are no signs of a significant short base in place base on in repo trading and this week's prior auctions have been mixed,’ Canavan said.
While last month's 7-year note auction did not go well in the midst of a rising interest rate environment, the market tone has improved into this month's auction, which should help the sale, Canavan said.
‘Foreign demand has remained quite good out the curve in recent months even as it has generally tapered off in the front-end,’ he added. ‘We expect that should help the auction go well again this month.’
Over the past 12 months, the 7-year note auctions have had an average bid/cover of 2.88.
Thirty-year Treasury bonds climbed 19/32, their yields easing to 4.43 percent from 4.46 percent on Wednesday.
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