US bonds climb

The US Treasuries market rallied on Thursday as the latest jobs and factory data stoked fears of a dismal August payrolls report and bets the Federal Reserve will introduce more stimulus to avert a new recession. While some of the latest readings on the US economy were not as dire as some had feared, traders concluded that on balance they signal that the recovery from the last recession has hit a wall.
"You are seeing increasing pessimism on what the jobs report is going to show on Friday - traders are betting on a weaker than expected number and that was fuelled by weakness in the factory data today," said David Dietze. Some top officials at the US central bank voiced support for more stimulus, including increasing the maturity of the Fed's $1.65 trillion in Treasuries holdings by buying longer-dated bonds, according to minutes of the Fed's August policy meeting released on Tuesday.
Investors' dour outlook on the jobs market and the economy, together with worries that Europe's debt crisis is spiralling out of control, has stoked buying of US government debt. "Economic data are still telling you that things are not improving," said Lee Cohen, head of government trading at Oppenheimer and Co in New York. "The markets always want candy from the Fed."
The White House weighed in on Thursday, sharply cutting its projections for US growth and acknowledging the outlook had deteriorated in financial market turbulence following ratings agency Standard & Poor's downgrade of the AAA US credit rating last month. Thursday marked a solid start of the Treasuries market for September after it recorded a 2.78 percent return in August, which was the biggest one-month gain since December 2008 at the height of the global credit crunch, according to Barclays Capital.
Volume picked up from earlier this week, as traders adjusted holdings before Friday's payroll report. As of midday Thursday, Treasuries transactions were 8 percent above average, according to bond broker ICAP. Prices on benchmark 10-year Treasury notes traded up 26/32 with a yield of 2.14 percent, down 9 basis points on the day. The 10-year yield recorded an intraday low of 1.976 percent two weeks ago, according to Tradeweb. That was the lowest in at least six decades.
The 30-year bond traded 2-4/32 higher for a yield of 3.51 percent, down from 3.61 percent late Wednesday. While first-time claims for jobless benefits fell last week, the number of US workers who continued to collect benefits in the week ended August 20 fell by 18,000 to 3.735 million from a week earlier, but were up from 3.719 million a month ago, the Labour Department said.