Reuters
U.S. Treasuries trim losses as data discounted
Thursday July 22, 9:26 am ET
By Wayne Cole
NEW YORK, July 22 (Reuters) - U.S. Treasury prices ticked lower in lackluster trade on Thursday, pressured in part by U.S. job data which seemed strong on the surface though largely because of a statistical quirk.
The bears were encouraged when initial jobless claims fell a larger-than-expected 11,000 last week to 339,000. More importantly, continued claims dropped a huge 167,000 to 2.98 million, its lowest level since May 2001.
The figures could suggest that the softness of payrolls seen in June was just a passing fad and jobs would revive this month. However, analysts noted the Labor Department attributed the fall in continued claims to seasonal factors misreading the timing of summer auto plant closures, thus making it hard to draw any conclusions from the numbers.
The market seemed to agree since after slipping initially on the data, Treasuries quickly trimmed their losses. The benchmark 10-year note (US10YT=RR) regained all its lost ground to be steady at 4.47 percent.
Traders said speculators were trying to break a chart barrier around 4.50 percent in the hope of triggering mortgage-related hedging, and would latch onto any reason to sell.
"The data's not that convincing but it will support the perception that the June payrolls data was understated," said David Sloan an economist at 4CAST. "That's the way the bond market would interpret the numbers."
Bonds had rallied in recent weeks as a rash of soft June data led bulls to hope the Federal Reserve might raise interest rates at a slower than measured pace.
Those hopes were dashed this week when Fed Chairman Alan Greenspan dismissed the data as a soft patch and predicted an acceleration in economic growth in the months ahead.
Interest rate futures (0#FF

have reacted by pricing in a quarter point rate rise at each of the Fed's remaining four meetings this year, which would lift fed funds to 2.25 percent in time for Christmas.
Likewise, short-term yields have turned higher once more, leading to a marked flattening of the yield curve. Early Thursday, the two-year note (US2YT=RR) was off 1/32 in price, while yields edged up to 2.68 percent from 2.67 percent.
The five-year note (US5YT=RR) eased 2/32, taking its yield to 3.71 percent from 3.70 percent. At the long end, 30-year bonds (US30YT=RR) were flat at 5.20 percent.
With little in the way of economic data due for the rest of Thursday, bonds could take a cue from equities where a sharp sell-off in tech stocks on Wednesday helped Treasuries trim their losses. Futures (NDU4) were pointing to a steady opening but there are a host of earnings reports due and investors seem inclined to focus on the bad news and ignore the good.
One item of interest will be Treasury's announcement, at 11:00 a.m. (1500 GMT), of its 20-year inflation protected notes auction.
Analysts look for Treasury to sell between $8.0 billion and $10 billion of 20-year TIPS and most seem to expect decent investor demand for the issue, which will be reopened twice. The auction is scheduled for next Tuesday.