US Treasury prices gain

US Treasury debt prices rose on Thursday as weak economic readings bolstered safe-haven buying and trumped supply worries, a day before the release of the January payrolls report. Thursday's government data pointed to further deterioration in the jobs market and in factory sectors, confirming that the United States remains mired in a deep recession.
The safety bid was limited however by the rise in stock prices on hopes that a government plan to prop up the financial system would include measures to staunch bank losses and boost lending. "After the initial bounce in Treasuries prices from the recession news, money moved back to equities on expectations of some government plan next week," says Andrew Richman, fixed income strategist with SunTrust Private Wealth Management in Palm Beach, Florida.
Benchmark 10-year Treasury notes traded 5/32 higher in price for a yield of 2.92 percent, from 2.94 percent late on Wednesday, while two-year notes were unchanged in price for a yield of 0.98 percent. Data on Thursday showed initial claims for jobless benefits jumped to a 26-year high last week, while factory orders posted an unexpectedly steep 3.9 percent drop in December.
"The weak economic fundamentals argue for higher Treasury prices," said Jessica Hoversen, fixed income analyst at MF Global Research in Chicago. Thursday's data reinforced the view of a deteriorating economy and a dismal employment report on Friday. "People are definitely ready for a bad jobs report and they are jumping into bonds," Hoversen said.
The forecast for January payrolls is a drop of 525,000, compared with a 524,000 job loss in December, according to the median of forecasts from analysts polled by Reuters. Thursday's weak data overrode at least temporarily fears about another wave of Treasury supply to hit the market next week, including $67 billion in coupon securities tied to a record February government refunding, analysts said.
The Treasury Department said on Wednesday it will sell $32 billion in three-year notes, $21 billion in 10-year debt and $14 billion in 30-year bonds next week. It also planned to reintroduce the seven-year note this month and to issue 30-year bonds more frequently.
The surge in government borrowing is aimed at raising up to $2.5 trillion this year to finance its budget deficit and various financial bailouts. Five year Treasury notes were traded 5/32 higher in price for a yield of 1.90 percent, from 1.93 percent late on Wednesday, while 30-year bonds were 19/32 higher for a yield of 3.65 percent, from 3.68 percent.