(Bloomberg) — Treasuries fell as a report showed jobless claims were lower than forecast last week, reinforcing speculation the Federal Reserve will continue to reduce its bond-buying stimulus program as the economy strengthens.
U.S. five-year notes traded at almost the cheapest level since 2010 versus two- and 10-year securities amid speculation economic growth will lead the central bank to raise interest rates in 2015. Fed Chair Janet Yellen said yesterday the central bank is committed to policies that will support the recovery. The U.S. is scheduled to sell $18 billion of five-year Treasury Inflation Protected Securities today.
"She was very, very intentional about explaining her vision for the approach to adapting fed policy to economic performance," said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. "The fives will be the first place to cheapen as the Fed looks to tighten."
U.S. five-year yields rose three basis points, or 0.03 percentage point, to 1.68 percent as of 8:37 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in March 2019 was 99 3/4.
Benchmark 10-year note yields added three basis points to 2.66 percent.
Holiday pause
Trading of U.S. government securities is scheduled to close at 2 p.m. in New York and stay shut tomorrow for Good Friday, according to the Securities Industry & Financial Markets Association. On April 21, trading will stop at 3 p.m. in Japan and remain closed during London hours for the U.K.'s Easter Monday. The market will open as usual in the U.S. on April 21.
Five-year TIPS yielded negative 0.50 percent before today's auction, versus the 12-month average of minus 0.63 percent. The previous sale of five-year TIPS in December drew bids for 2.5 times the amount of debt offered, up from 2.2 at a prior auction in August.
The butterfly spread, the five-year note versus two- and ten-year debt, was 28 basis points after climbing to 29 basis points yesterday. That level is close to the highest in four years, with the increase reflecting waning demand for the middle security versus the other two. Jobless claims increased by 2,000 to 304,000 in the week ended April 12 from a revised 302,000 the prior period that was the lowest since September 2007, a Labor Department report showed. The median forecast of 47 economists surveyed by Bloomberg called for an increase to 315,000.
Yellen speech
"There is little question that the economy has remained far from maximum employment," Yellen said in a speech to the Economic Club of New York.
"Yellen didn't deliver major surprises," said Michael Leister, a senior fixed-income strategist at Commerzbank AG in London. "Treasuries are under pressure a bit. The curve shows there is still an expectation" of interest rate rises next year, he said.
