Treasury debt prices climbed on Thursday as Middle East tensions boosted demand for safe-haven US government debt. In the United States, jobless claims figures pointed to subdued wage gains for the coming year, while a 0.4 percent rise in January consumer prices, fuelled by higher food and energy costs, got some notice from the inflation-wary bond market.
"The mercury is rising on consumer inflation," said Joseph LaVorgna, chief US economist at Deutsche Bank Securities. A strong bid by inflation-wary investors for $9 billion of new 30-year Treasury Inflation-Protected Securities spotlighted that concern, causing a rise in the 30-year breakeven rate, another mirror of investors' long-term inflation outlook.
Still, market action showed that inflation concerns, which would normally hurt prices and boost yields, took a back seat to other issues. Middle East developments included mass protests in oil-producing regions and Iran's apparent intention to send two warships through the Suez Canal, an act Israel said it would view as a provocation.
"The market had a big move to higher yields on a lot of economic optimism, and having Mideast tensions crop up when the investor base was fairly short created a backdrop that was ripe for a short squeeze," said Robert Tipp, chief investment strategist for Newark, New Jersey-based Prudential Fixed Income with $240 billion in assets under management. Concerns over the region helped push yields on the US benchmark ten-year Treasury note down to 3.58 percent. During the session, they tested technical resistance at 3.56 percent. The notes last traded up 13/32 in price, their yields falling from 3.62 percent late on Wednesday.
Bond yields jumped in early February as investors bet on faster US economic growth than previously expected. But some investors thought the selling went to far. In late trade on Thursday, two-year Treasuries were last up 4/32 in price, their yields easing to 0.77 percent from 0.84 percent on Wednesday. After the 30-year TIPS auction, the breakeven rate between 30-year regular Treasuries and 30-year TIPS rose 2.51 percentage points, up from about 2.48 points at Wednesday's close. It traded at 2.46 points before the auction.