US Treasuries fell on Thursday after jobs and trade data suggested the economy wasn't as weak as feared, boosting riskier assets such as stocks and hurting demand at the government's long-bond auction. Safe-haven bonds took a hit early in the day from news that claims for jobless benefits fell more than expected last week and the trade deficit narrowed sharply in July, data which provided hopeful signs for the stuttering economic recovery.
The news got worse for Treasuries when bidders held out for higher-than-expected yields at a $13 billion auction of 30-year bonds. This "tail" indicated there were limits to investor appetite for government debt given their low yields currently. Though Thursday's sale was the only poor one of this week's three offerings totalling $67 billion, it hints the market might be over-priced if the economy is healthier than analysts had feared, even after recent bond-market losses.
Trading on the open market, 30-year Treasury bonds were last down two points in price, yielding 3.85 percent versus Wednesday's close of 3.74 percent. They were barely down a point just before the auction results were announced. Long bonds also under-performed in swaps, with the 30-year spread narrowing on the day. In contrast, the 10-, five- and two-year swap spreads were all wider on the day.
Long bonds also under performed on the yield curve, with 2s/30s and 10s/30s steeper on the day, providing the latest evidence that the market is factoring in a worse economic outcome than recent data indicate is in store. The benchmark 10-year note fell 27/32 in price to yield 2.76 percent, right in the area of trend-line support on the charts and above Wednesday's close of 2.66 percent. Five-year notes were also walloped, falling 16/32 to yield 1.57 percent versus Wednesday's close of 1.46 percent. Two-year notes dropped 3/32 to yield 0.57 percent versus Wednesday's close of 0.53 percent.
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