US Treasury debt prices rallied on Thursday as stock market losses and nagging concerns over Greece's fiscal situation revived a safety bid for lower-risk securities. Demand for bonds intensified after news of an unexpected rise in US jobless claims rekindled concerns over the labour market, hampering the pace of economic recovery, analysts said.
This reality check on job conditions came a day after the Federal Reserve upgraded its outlook on the economy and financial markets and kept its pledge to hold short-term interest rates near zero until a recovery is self-sustaining. The government said first-time filings for unemployment benefits totalled 480,000 in the week ended December 12, topping expectations of 465,000 and above the prior week's revised 473,000.
Also fuelling the bullish run in Treasuries was news that a Senate panel approved the nomination of Fed Chairman Ben Bernanke for a second term. This view on Bernanke helped propel Treasuries to session highs, while yields were on track for their biggest one-day drop in about eight weeks.
A fresh proposal from the Basel Committee of central bankers released Thursday that outlined higher capital requirements for banks, which could take effect by the end of 2010, also contributed to Treasuries' rally, analysts said. US benchmark 10-year Treasury notes last traded up a full point in price. The yield, which moves inversely to the price, was 3.48 percent, down 12 basis points from late Wednesday.
The 30-year bond, the longest US government maturity, traded up 1-25/32 for a yield of 4.42 percent, down 11 basis points on the day. Despite the sluggish US job market, other reports released on Thursday showed the economy is on the mend since growth returned in the third quarter.
The Conference Board's index on future economic conditions rose in November for an eighth consecutive month, while the Philadelphia Fed's December report on US Mid-Atlantic business activity showed surprising strength. But the stocks sell-off, the jobless claims and default concerns after Standard & Poor's downgraded Greece, spurred a flight back to Treasuries and the dollar, analysts said. A rally in long-dated Treasuries flattened the yield curve, which hit an intraday record in overseas trading. The gap between two- and 10-year yields shrank to 273 basis points from a record 277. It traded as low as 272 basis points.