US Treasury debt prices fell on Thursday after an interest-rate hike in Europe and a subdued trend in new US jobless claims underscored the outlook for more Federal Reserve rate hikes.
Benchmark 10-year notes dropped 13/32 in price for a yield of 4.64 percent, its highest since November and up sharply from Wednesday's 4.59 percent close.
"The ECB raised its benchmark rate from 2.25 percent to 2.50 percent and we saw a carry-through of that in the US markets," said Chris Molumphy, chief investment officer at Franklin Templeton Fixed Income Group.
Also, the government's report that US jobless claims rose, but stayed below 300,000, in the week ended on Saturday, drew attention to labour market utilisation, an aspect of economic activity that the Fed is watching carefully.
"The jobless claims number went up quite a bit, but the idea here is that because it stayed below 300,000 there's a good chance that the US unemployment rate continues to fall," said Chris Rupkey, vice president and senior financial economist at Bank of Tokyo/Mitsubishi.
A declining unemployment rate implies a tighter labour market and a higher risk of inflation, he said.
"That leads to expectations that the Fed is still going ahead with its series of rate hikes," Rupkey said.
Analysts will get a better feel for the state of the labour market in next week's payrolls report for February, which is expected to show another month of solid job growth. Forecasts predict around 200,000 new positions were created.
Molumphy said the mirroring of the global environment in the US Treasury market on Thursday was atypical.
"On one hand, this globalisation trend in the financial markets is here to stay and it's something that investors need to be cognisant of when making decisions," he said. "But conversely, the primary drivers of US interest rates have been relatively stable so we do not expect to see this type of volatility on a regular basis."
Traders said the sharp move up in yields on Thursday was partly due to investors' unwinding recent bets that short rates would keep rising faster than long rates.
"We breached key support levels and that triggered more selling," said Frank Hsu, director of global fixed-income at Fimat.
As a result, the 30-year bond fell one point for a yield of 4.65 percent, up from 4.56 percent.
In the Treasury market, the recent inversion in the yield curve receded, with 10-year yields yielding nine basis points less than two-year yields, versus 12 basis points less on Wednesday.
Short-dated Treasuries mostly withstood the selling pressures, with two-year notes off just 1/32 and yielding 4.73 percent. Five-year debt lost 6/32 and offered a yield of 4.68 percent.
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