Prices for US Treasuries edged slightly higher on Thursday as a drop in the dollar against the yen boosted demand for US government debt, but caution ahead of the government's May payrolls data kept gains modest. Stocks slid during most of the session as the dollar sold off on worries about the upcoming jobs numbers, before reversing course and rising in late afternoon trading.
"We saw that big downdraft after dollar/yen plunged lower," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. "Risk-on trades were dumped, risk-off trades were put on," she said, noting that thin trading added to volatility. "And now we've just seen a little bit of position-unwinding heading into the close and the payroll report tomorrow."
The payrolls data, analysts say, could shed light on whether the Federal Reserve will soon slow or even stop its massive easing program. Other data this week has disappointed markets, including a report by payrolls processor ADP showing US private employers added fewer jobs than expected in May. "There's fear of a softer payroll figure," said David Ader, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.
Economists polled by Reuters estimated US employers likely added 170,000 jobs in May, while the jobless rate remained unchanged at 7.5 percent - still a full percentage point above the 6.5 percent Fed policymakers want to see. A particularly strong payrolls number could push benchmark yields higher, but a poor figure could mean a slip in yields, perhaps even below 2 percent. The benchmark 10-year Treasury note rose 5/32 in price on Thursday and its yield fell to 2.075 percent, from 2.09 percent late on Wednesday.
Thirty-year bonds rose 5/32, their yields slipping to 3.237 percent from 3.25 percent late on Wednesday. "We tested the high end of the price range and low end of the yield range overnight last night," said Stone & McCarthy Research Associates fixed-income analyst John Canavan. The low end of the range had been just above 2.06 percent for 10-year yields and 3.22 percent on 30-year yields.
The Fed on Thursday bought $3.68 billion in Treasuries, part of its $85 billion-a-month program of purchases of US Treasuries and mortgage-backed securities aimed at keeping interest rates low to foster economic growth and employment. New US claims for unemployment benefits for the latest week came in much as expected, falling to 346,000, according to the Labour Department. The Reuters consensus forecast was 345,000.
The report briefly hurt bond prices because a healthier labour market could eventually lead to higher wage and inflation pressure and - more immediately - argue for the Fed to cut back on its large-scale bond purchases. But Friday's payrolls data will weigh most at the Fed, where policymakers also want to see a sustained run of healthy jobs gains. The Fed will hold its next policy meeting on June 18-19.
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