Treasuries benchmark yields test three percent mark

03 Dec, 2010

US Treasuries skidded on Wednesday with benchmark yields testing the 3 percent mark, as solid economic data and speculation of more aid to weaker European nations cut demand for less risky government debt. Hopes of an improving global economy and additional help for the debt and fiscal woes in Europe whetted investor appetite for stocks and risky investments. Major US stock indexes rose more than 2 percent on the day.
The market also suffered an erosion in technical support on the first day of December, signalling another tough month for bonds. The Treasuries market came off its worst performance since March, according to Barclays Capital, whose total return index on Treasuries fell 0.70 percent in November.
"Right now the charts on bonds show they will go lower. There is a short-term up-trend on yields," said Art Huprich, chief market technician at Raymond James in St. Petersburg, Florida. "The odds favour stocks over bonds." Stronger-than-expected data in Asia and Europe triggered initial losses in bonds in overseas trading. The sell-off accelerated after a report showed US private sector payrolls posted their biggest rise in three years in November, lifting confidence about the job market before Friday's US employment report for November.
Optimism over a resolution to the European debt crisis rose on news that the United States may be ready to support the extension of the European Financial Stability Facility via an extra commitment of money from the International Monetary Fund. The yield on 10-year Treasury notes was flirting with levels that would put it on track for its biggest rise since June 2009. It pierced above key chart support at 2.97 percent and traded as high as 2.99 percent, its highest since late July.
The 30-year bond yield touched 4.24 percent but short of the then 6-month high of 4.42 percent in mid-November due to a liquidation of bets linked to the Federal Reserve's second bout of quantitative easing, known as QE2. Wednesday's sell-off in Treasuries epitomised the recent gyrations dominated by short-term trades rather than longer-term strategies, as banks and fund managers prepare to close their books before year-end, analysts said.
Given this short-term orientation, traders are setting for the government's November payroll data on Friday. Its latest snapshot on the labour market seems more likely to confirm other indicators that the economy is picking up speed toward year-end after a summer slowdown. Economists polled by Reuters predicted US employers likely added 140,000 jobs in November after hiring 151,000 in October. But that growth was not expected to bring down the jobless rate, which was at 9.6 percent in October.

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