US Treasury debt prices fell on Thursday after better-than-expected weekly jobless figures shifted sentiment in favor of a start to Fed interest-rate increases sooner than later. The declines reversed gains made Wednesday following the release of minutes of the Federal Reserve's latest policy meeting, which were more dovish than expected. On Thursday, 10-year Treasuries were off 19/32 and yielding 2.1081 percent. The yield was up from 2.068 percent on Wednesday.
Wilmer Stith, fixed income portfolio manager at Wilmington Trust in Baltimore, Maryland, said part of the move was the result of data showing fewer than forecast Americans filing new claims for unemployment insurance. "The market's recalibrating and thinking, maybe we shouldn't be changing where we think the fed funds rate is going to move higher," Stith said.
The US Labor Department said initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 283,000 for the week ended February 14. Economists polled by Reuters had forecast claims falling to 293,000 last week. Price declines were even larger in 30-year bonds, partly because the Treasury Department sold $9 billion of inflation-protected 30-year bonds, according to traders.
Treasuries, which had been weakening for weeks, rallied on Wednesday after the Fed released minutes from its January meeting that were viewed as diminishing chances of the first rate hike since 2006 coming in June. But many investors took a different view on Thursday, portfolio managers and analysts said. "They didn't really say what the time frame (for rate hikes) is, so maybe it's not as dovish as people thought," said Sean Murphy, a Treasuries trader at Societe Generale in New York.
Thursday's price declines represent a tilt back in favor of a June rate increase. The two-year note was down 1/32 to yield 62 basis points. "Ultimately, the market is pricing for a rate hike, whether it's June or September," David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Bank in New York. Economists mostly expect the Fed to start raising rates in June, citing rapidly tightening labor market conditions. The Fed has kept its short-term rate near zero since December 2008.
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