Longer-dated US Treasury yields rose on Thursday as risk appetite increased, diminishing the attractiveness of safe-haven US government debt. Investors favoured selling longer-dated debt as the US Treasury yield curve had compressed to its tightest level in more than a decade earlier this week.
Short-term Treasury yields were little changed ahead of the all-important non-farm payrolls report scheduled on Friday, increasing the yield premium between long- and short-dated notes. Yields on two- and three-year notes both hit their lowest level in more than eight years on Wednesday.
"The curve has been flattening a lot over the last couple months and has continued recently too. I think it's more just a little cooling off on that trend," said Thomas Simons, money market economist at Jefferies & Co. "The front end has already gotten beat up enough. The long end, on the other hand, rates are pretty low when you think about it." Simons also pointed to news headlines suggesting US lawmakers were closer to coming to terms on an agreement to avert a government shutdown.
The difference between yield on two- and 10-year notes touched its lowest since 2007 on Wednesday. The spread reversed course Thursday, widening as 10- and 30-year yields rose. Benchmark US 10-year Treasury notes fell 10/32 in price to yield 2.37 percent.
The 30-year bond fell 27/32 in price to yield 2.76 percent. US two-year notes were little moved from their late Wednesday levels, yielding 1.81 percent.
Investors also are looking toward the conclusion of the Federal Reserve's policy meeting next week. An increase of US overnight interest rates to 1.25 - 1.50 percent is already priced into Treasuries, analysts say, with Fed funds futures showing that 100 percent of the market expects a rate hike. The number of Americans filing for unemployment benefits unexpectedly fell last week to 236,000, data showed, but that had little impact on the market as bond traders are keen to examine the details in the Labor Department's Friday release.
In addition to the Fed's meeting, the US Treasury will be holding auctions of three-, 10- and 30-year government debt next week.
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