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treasury-departmentNEW YORK: US Treasuries prices fell on Thursday as the government's latest report on new jobless claims painted a more upbeat picture of the labor market.

The ability of the economy to produce jobs will be a major ingredient in formulating the future course of monetary policy with the Federal Reserve better able to gradually reduce monetary accommodation if the labor market's health improves.

Investors expect the end of the Federal Reserve's latest stimulus program will hurt stocks and bonds, according to a Reuters poll.

Bonds sold off because ‘the message (of the jobless claims data) is there is not a severe deterioration in the labor market,’ said Pierre Ellis, senior economist at Decision Economics in New York.

Benchmark 10-year Treasury notes fell 16/32 in price, their yields rising to 3.24 percent from 3.18 percent late on Wednesday.

Besides the drop in new jobless claims, continuing claims, reflecting the actual number of employment insurance checks issued, fell back after having risen sharply, he said.

‘Next week's continuing claims number, which will refer to the payroll survey week, will be decisive,’ Ellis said.

Earlier this week, Treasury yields briefly broke through technical resistance pegged at 3.14 percent on the 10-year Treasury yield. But daily momentum turned bearish as of Wednesday's close, RBS analysts said in a research note.

While economic data suggest ‘the risks are symmetric for bond prices, technicals still point to a looming correction (to higher yields) of overbought conditions,’ they said.

The rise in oil prices also rekindled some worries about inflation, further undermining Treasuries prices.

Minutes from the Fed's April policy meeting, released on Wednesday afternoon, showed a few central bank officials saw a rise in inflation risks that suggested tightening of monetary policy might be necessary sooner than was currently anticipated.

In its policy statement last month, the Fed said rising price pressures were expected to be transitory.

Thirty-year bonds fell 30/32 in price, their yields rising to 4.36 percent from 4.30 late on Wednesday.

Two-year notes were 2/32 lower in price, their yields rising to 0.59 percent from 0.57 percent late on Wednesday, Five-year notes fell 8/32, their yields rising to 1.91 percent from 1.85 percent on Wednesday.

Copyright Reuters, 2011

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