Treasuries prices fell on Thursday as US employment and other data showed a brightening economic picture and new reports indicated that Greece was getting closer to reaching an agreement to swap its debt and avoid a disorderly default. Data on Thursday showed that the number of Americans filing for new jobless benefits fell to a near four-year low last week and factory activity in the Mid-Atlantic area grew in February.
Hopes rose that Greece had made enough spending cuts to secure a second bailout package worth 130 billion euros ($170 billion) after Athens set out extra budget savings demanded by its international lenders. "You've had better economic news, and you've had better news out of Europe," said Scott Graham, head of Treasuries trading at BMO Capital Markets in Chicago.
Long-dated debt extended price losses after the Treasury sold $9 billion in Treasury-Inflation Protected Securities (TIPS) at higher yields than were expected before the sale. "In my view the market should have been a lot lower a lot sooner," Graham added. The new 30-year TIPS priced at a high real yield of 0.77 percent, around 7 basis points higher than where the debt had traded before the auction.
Thirty-year bonds fell 1-06/32 in price to yield 3.15 percent, up from 3.09 percent on Wednesday. Benchmark 10-year notes were last down 19/32 in price to yield 2 percent, up from 1.93 percent late on Wednesday. The yields have traded within a range from around 2.05 percent and 1.80 percent for the last two months.
Safety buying from uncertainty in Europe and Federal Reserve purchases have kept yields from rising above their recent range, even as the economy appears to be sequentially improving. The Fed bought $1.81 billion of Treasuries maturing between 2036 and 2042 on Thursday as part of its Operation Twist program, designed to lower long-term borrowing rates. It will buy as much as $5 billion in notes maturing 2018 to 2020 on Friday.
At the same time headlines from Europe have been relatively unconvincing as an agreement to restructure Greece's debt is repeatedly delayed, said Chris Ahrens, interest rate strategist at UBS in Stamford, Connecticut. The Federal Reserve said on Thursday that it will sell $99 billion in new coupon debt next week, including $35 billion in two-year notes, $35 billion in five-year notes and $29 billion in seven-year notes. The short-dated tenor of the debt makes it likely that the sales will run smoothly.