Prices up on jobs and Europe worries, lower stocks

NEW YORK: US Treasury debt prices rose on Thursday as falling stocks, higher-than-expected claims for jobless benefits, and worries over financial conditions in Europe bolstered safe-haven demand for US debt.

The rise in prices raised some doubts about the willingness of investors to pay up at current levels in the Treasury's auction of $29 billion of seven-year notes on Thursday afternoon.

Treasuries began the day higher after a bigger-than-expected rise in new claims for US jobless benefits stirred nagging worries about lofty US unemployment.

Buying intensified as stocks fell in sync with weakness in German and European shares, overshadowing news Warren Buffett's Berkshire Hathaway Inc agreed to invest $5 billion in Bank of America Corp.

"Treasuries are trading higher this morning as jobless claims surged and the general feeling in the market is that, regardless of what the Fed says or does, regardless of how much money Warren Buffett commits to B of A, the US economy is on a track more towards a recession than a recovery," said Kevin Giddis, managing director of fixed income at Morgan Keegan in Memphis, Tennessee.

"This is causing yet another rush to safety, pushing prices higher and yields lower," Giddis said.

Benchmark 10-year Treasury notes were trading 15/32 higher in price to yield 2.24 percent, down from 2.30 percent late on Wednesday, while 30-year bonds were 23/32 higher to yield 3.61 percent from 3.65 percent.

Worries over the eventual impact of a European debt crisis also added to the buying in Treasuries. World stocks dropped following weakness in German shares on Thursday on trader talk that a short-selling ban may be enacted in Germany after the market's close.

"There has been talk about short selling, so some of (the move in Treasuries) seems to have been induced by the German situation," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

A German finance ministry spokesman said on Thursday, in reaction to the market rumors, that the country is not planning a general ban on short selling.

The US government said initial claims for state unemployment benefits rose to a seasonally adjusted 417,000 in the latest week. Economists polled by Reuters had forecast claims rising to 405,000 last week.

Although the government said the claims numbers were bolstered by striking Verizon Communications workers, the worries over the state of the labor market bolstered the safe-haven appeal of US government debt

"Those strikers report themselves as unemployed. It's a temporary effect, but still this doesn't look good for the jobs market," said Robbert Van Batenburg, head of global research at Louis Capital Markets in New York.

Thursday's rise in Treasuries prices, and the overall comparatively low level of yields, raised some doubts about demand in the seven-year notes auction on Thursday afternoon.

The notes were trading on the open market with a yield of 1.56 percent. In the when-issued market, considered a proxy for where traders expect the high yield to come in at auction, seven-year notes were trading with a yield just above 1.58 percent.

"There is certainly some safe-haven demand, but it also richens the issue a bit," Rupert said, adding "we were already going to price at a new record low (yield) and prices are even more expensive now."

Investors are also anxiously waiting to hear from Federal Reserve Chairman Ben Bernanke on Friday, when he speaks on near and long-term prospects for the US economy at Jackson Hole, Wyoming. The speech will be closely watched for any hints US central bank officials may be contemplating further stimulus to roust the economy from economic malaise.

While the focus is on Bernanke's speech, few expect him to announce any significant new programs similar to the latest $600 billion round of Treasuries buying, known as QE2, which ended in June.

Copyright Reuters, 2011