Treasuries surge

US Treasury debt prices surged on Thursday as investors fled stocks and other riskier assets on fears European debt problems will spread and after an unexpected increase in US jobless claims. Yields on benchmark 10-year Treasury notes and two-year Treasuries posted their biggest drop since mid-December as investors poured into government debt.
The jump into safe haven assets came on the heels of a sell-off in the euro and Portuguese, Spanish and Greek stocks as growing fears over the fiscal problems of debt-laden southern members of the euro zone widened. "Risk aversion is the key driver of the bid for Treasuries today," said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
"There was the data this morning, but that was on the heels of all the concerns overseas, which has not only added to the risk aversion bid for Treasuries, but has also taken its toll on stocks," he said. The 30-year bond jumped 1-19/32 in price, to yield 4.54 percent.
Adding to worries about Europe's woes, US workers filing for jobless benefits unexpectedly rose last week, sparking fears Friday's reading on payrolls for January will be worse than expected. First-time claims for unemployment benefits last week rose by 8,000 to 480,000, whereas analysts expected claims to fall by 10,000.
A Reuters survey predicted nonfarm payrolls grew 5,000 after a surprise 85,000 drop in December. The unemployment rate, however, is expected to edge up to 10.1 percent in January from 10 percent. Median forecasts from the top 20 forecasters saw payrolls unchanged last month.
The claims data added to gains in Treasury prices driven by ongoing worries over the soundness of debt issued by peripheral euro zone countries such as Greece, Spain and Portugal. "There's a lot of buying in Treasuries, especially in Europe," said Glen Capelo, co-head of rates at BroadPoint Capital in New York, with investors becoming increasingly concerned about the potential fallout from the Greece fiscal crisis.
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, told a French radio station on Thursday that Greece's financial situation was "very serious" and that the IMF would lend money to Greece if asked. However, he expressed confidence in the Greek government's plan to get its finances in order and said the country was not on the verge of bankruptcy.
The cost of insuring against potential debt defaults of Greece and several other countries rose, including that of the United States. The cost of insuring against US default reached its highest level since April 2009. Nevertheless, investors saw US debt as a safer bet than that of other countries, stoking demand for US Treasuries.
Analysts said Thursday's rally in Treasury prices was also in part a reaction to the steep price declines that longer-dated US government securities saw on Wednesday. News of coming corporate bond issuances, including a four-part $9.5 billion debt issuance from Kraft Foods Inc, prompted underwriters to sell Treasuries to lock in the yields on the corporate bonds they were planning to underwrite. "You had a pretty fierce backup yesterday on the back of news of corporate issuance that led to rate locking," said Aaron Kohli, an interest-rate strategist at RBS Securities in Stamford, Connecticut.