The US Treasuries market stumbled on Wednesday, snapping three days of gains, as data that signalled improving labour conditions boosted stocks and eroded the safe-haven appeal of government debt. Compounding the market selloff was the weak bidding for $29 billion in seven-year notes, part of this week's $99 billion in coupon-bearing supply.
"The equity market rallied so it's natural to see some flows out of fixed income," said Brian Rehling, senior fixed income strategist at Wells Fargo Advisors in St. Louis, Missouri. In the absence of the Federal Reserve buying for its $600 billion bond program, known as QE2, traders more than took back the gains Treasuries made Tuesday when renewed tensions on the Korean peninsula and worries over fiscal troubles in Ireland and Portugal spurred flight-to-safety buying.
Amid a raft of economic data, which overall painted a relatively mixed picture of the state of the economy, the fall in jobless claims stood out. The government said new US claims for unemployment dipped to the lowest in more than two years last week.
US benchmark 10-year Treasury notes finished more than 1 point lower in price to yield 2.92 percent, up from 2.78 percent late Tuesday. The note tested chart resistance in the 2.75 percent area in overnight trading. Intermediate Treasuries were the day's worst performers, bogging down by poor auctions. The five-year and seven-year yields jumped nearly 17 and 15 basis points, respectively.
Overall bidding at Wednesday's seven-year debt sale was the lowest since March, while the yield cleared at 2.253 percent, 1 basis point above what traders had expected. "There was a lack of a short base, holiday seasonal and better than expected economic data resulted in diminished interest for today's auction of 7-year notes," said Chris Ahrens, interest rate strategist at UBS in Stamford, Connecticut. The data on claims for jobless benefits reduced appetite for bonds and helped send Wall Street stocks indexes more than 1 percent higher.
"A blizzard of data this morning ahead of the Thanksgiving holiday, (but) one thing stands out - weekly jobless claims are tumbling," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "This is exactly what it looks like when the labour market springs back to life after the end of a recession." Apart from jobless claims, economic data was mixed, a day after the Fed downgraded its outlook on the gross domestic product and employment in 2010 and 2011.
Consumer spending rose for a fourth straight month in October, while new orders for long-lasting US manufactured goods unexpectedly fell last month. Consumer sentiment picked up more than expected in November, but new home sales unexpectedly fell in October.
Some analysts expect yields should hold at these higher levels on Friday without major data and Treasury purchases by the Fed. They see chart support for 10-year yield at about 3.00 percent and resistance in the 2.75 percent area. The US bond market will shut on Thursday for the Thanksgiving holiday and will close early at 2 pm ET (1900 GMT) on Friday.
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