US Treasury bond prices climbed on Thursday as an unexpectedly sharp drop in June payrolls shook confidence in the prospects of economic stabilisation, though supply concerns limited gains. The Treasury Department announced the sale of $73 billion in longer-dated debt next week, crimping further gains in the long end of the curve.
The government reported that payrolls declined by 476,000, considerably more than the anticipated 363,000 decline, driving a safe-haven bid for Treasuries. "The key thing is that the payrolls data was friendly" to bonds, said John Spinello, Treasury bond strategist at Jefferies & Co in New York.
"People would like to have seen it not as friendly, so you could get some concessions in the $73 billion of supply next week, so it could make the auctions next week a bit of a risky proposition."
Bond gains were led by the belly of the curve, as five-year note prices rose 13/32 in price to yield 2.44 percent, down from a yield of 2.53 late on Wednesday. Seven-year notes also rose 12/32, and 10-year notes climbed 11/32, for a yield of 3.50 percent versus Wednesday's close of 3.55 percent. Thirty-year bond prices gained only 2/32, giving a yield of 4.33 percent, roughly unchanged from Wednesday.
Thirty-year gains were reduced compared to the rest of the curve due to fears of oversupply following the Treasury Department's release of next week's debt sales. The Treasury said next week it will sell $35 billion of three-year notes, $19 billion of reopened 10-year notes, and $11 billion of indexed 30-year notes, along with $8 billion of 10-year inflation indexed notes.
While Treasury auctions have thus far been surprisingly well received by investors, there are worries that appetite for US government debt may soon be sated. Investors may also be reacting to geopolitical concerns, said Spinello, as "very few want to carry a short into the weekend with the geopolitical situation in North Korea, so the market is trying to get on side."
North Korea on Thursday test-fired four short-range missiles, compounding already high international tension due to its nuclear test and threats to boost its nuclear arsenal. Domestic policy concerns could also be spurring a safe-haven bid. President Barack Obama's health care and energy plans, which are presently being debated, have the potential to affect a combined 25 percent of the US economy, said Jim Hardesty, president of Hardesty Capital Management in Baltimore, Maryland.