US bond prices fall

US Treasuries prices eased on Thursday in thin pre-holiday trade after lower-than-expected weekly jobless claims bolstered expectations of an economic recovery and undermined bonds' safe-haven appeal. The government said the number of workers filing new applications for jobless benefits fell last week to the lowest level in about 17 months, down by 22,000 to a seasonally adjusted 432,000.
Benchmark 10-year notes traded 10/32 lower in price to yield 3.84 percent. The yield earlier reached as high as 3.90 percent, which was the loftiest since early August and just below the year's high closing yield of 3.95 percent in June.
Benchmark yields finished Wednesday at 3.80 percent. Treasuries "sold off in the wake of jobless claims, surely exaggerated by the low liquidity and limited staffing levels," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. The lower-than expected claims had the few analysts in their offices reconsidering their forecasts for December employment data, which the government will release next week.
The median of forecasts from economists polled by Reuters is for December non-farm payrolls to have shrunk by 20,000, following a loss of 11,000 jobs in November. While the weekly jobless claims did offer some hope, employment remains one of the biggest problems of the struggling economy.
Although November employment data showed the pace of job losses was slowing, the US economy has shed some 7.2 million jobs since December 2007, when the worst recession in decades began. Unemployment in November remained at 10 percent. At the year end, benchmark notes were on track for their worst monthly performance since April 2004 and the worst annual performance since 1999, according to Reuters data.
Yields rose by over 150 basis points this year on growing optimism for an economic recovery and worries over the impact of trillions of dollars of new US government debt. The government this week alone issued $118 billion of new debt, although its three note auctions generally were met with better demand than had been feared.
Another notable feature at year-end is the Treasury yield curve, which remains not far off record steep levels, with the spread between the yield on two-year notes and 10-year notes at 270 basis points. That spread reached a record high of 287 basis points last week.
Analysts have been worrying that the steep curve may be signalling expectations for rising inflation down the road, although it allows banks to borrow over the short term at low rates and lend over the long term at much higher rates. Two-year notes traded 3/32 lower in price to yield 1.15 percent, up from 1.09 percent late on Wednesday, while the 30-year bond traded 10/32 lower to yield 4.63 percent from 4.61 percent.