US Treasury prices gain

US Treasuries advanced on Thursday after the government reported weaker-than-forecast December US retail sales and a higher-than-expected number of new jobless claims in the latest week. "It looks like the economy is still relatively weak," said Gary Thayer, chief macrostrategist at Wells Fargo Advisors in St. Louis, Missouri.
"That takes away some of the concerns that policy makers will raise interest rates anytime soon." Thayer said weaker-than-expected retail sales meant that retailers, in the face of modest demand, had limited pricing power. If the higher-than-expected count of new jobless claims reflects continued labour market weakness, workers' wages and benefit costs, also, will remain subdued, he said.
"It doesn't look like inflation is a threat," Thayer said. "That makes bond investors more comfortable." Two-year notes were up 2/32, their yields easing to 0.93 percent from 0.97 percent on Wednesday. Benchmark 10-year Treasury notes rose 13/32, their yields easing to 3.75 percent from 3.80 percent on Wednesday.
The market's next task is underwriting and distributing the Treasury's $13 billion auction of a re-opened issue of 30-year bonds. Ward McCarthy, chief financial economist in the fixed-income group at Jefferies & Co in New York, said the 30-year bond auction, scheduled for 1 pm (1800 GMT), would be more "problematic" than the three- and 10-year note auctions the Treasury conducted earlier this week.
"It's a second re-opening and, for the most part, those have been a pariah," McCarthy said. The first time the Treasury sold bonds in a second re-opening of an issue was in March 2009. The next time the Treasury did a second re-opening was in July and the auction tailed 1.3 basis points, McCarthy said. The most recent second re-opening of a 30-year bond issue occurred in October and the tail that time was three basis points, he said.
Even if the second re-openings of 30-year bonds are not so popular with buyers, the Treasury is doing them anyway because "with rates as low as they are, they want to lock in as much longer term debt as they can," McCarthy said. In the "when-issued" market, traders expected the new 30-year notes to yield about 4.685 percent. The cash 30-year bond was up 21/32, its yield easing to 4.67 pecent from 4.71 percent.