US Treasury prices rose on Thursday, supported by safe-haven demand on worries that the European sovereign debt crisis may not be solved without causing significant collateral damage to the global financial system. Gains were limited, however, by data on jobless claims, Midwest manufacturing and pending homes sales that gave more evidence the US economic recovery may be gaining traction.
The few investors who were around emphasised that trading volume was exceptionally thin, with many unwilling to take a strong position in only a skeleton crew of market participants. A closely watched Italian bond auction garnered lower yields than the last comparable auction. The result should have provided a modicum of relief to global markets, but the auction did not prompt selling in safe-haven Treasuries.
Italy auctioned 7 billion euros in bonds with maturities from three to 10 years. The number of bids placed were described by market analysts as "average." But the lackluster demand at the auction failed to curb risk aversion, and Italian debt yields later rose in trading, with concerns that the yield was still at a level that would be difficult for Italy to sustain, given the high level of debt issuance it faces in 2012.
"It was mixed results," said Rick Klingman, Treasury trader at BNP Paribas in New York. "They were lower than the last auctions in terms of yields, but we're back above 7 percent on the 10-year now." Klingman said the move higher in Italian yields was keeping what few traders there were in the market in crisis mode. "People hoped we would never be back at those levels again, but here we are," he said.
Ten-year Italian bond yields were hovering near 7.09 percent on Thursday, up from 7.05 percent late Wednesday and above the 7 percent level that is seen as unsustainable over the long term. Benchmark 10-year Treasury notes traded 6/32 higher in price to yield 1.90 percent, down from 1.93 percent late Wednesday. Safe-haven demand has bolstered Treasuries through the year, with benchmark notes set for the biggest yearly dip in yield since 2008. Thirty-year Treasury bonds gained 15/32 in price to yield 2.90 percent, down from 2.92 percent late Wednesday.
In the United States, initial claims for unemployment benefits increased 15,000 to a seasonally adjusted 381,000, the Labour Department said. Economists had expected claims to rise to 375,000. The four-week moving average - a better measure of trends - fell 5,750 to 375,000, the lowest level since June 2008.