TREASURIES-U.S. bonds inch up with jobless data in focus

LONDON, April 11 Thu Apr 11, 2013 6:23am EDT

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LONDON, April 11 (Reuters) - U.S. Treasury debt prices edged up in Europe on Thursday with weekly jobless claims due later in the day expected to show the labour market remains weak, supporting demand for low risk bonds.

U.S. Treasuries stabilised after a drop on Wednesday triggered by minutes to the Federal Reserve's March policy meeting that stirred fears the central bank may stop buying bonds by year-end.

Those concerns have, however, been tempered by uncertainty over how soon the Fed will slow or end the bond purchases, especially given the disappointing March payrolls report released last Friday.

"The weekly jobless claims, retail sales tomorrow and PPI (producer price inflation) data will be watched a lot more closely after nonfarm payrolls," a trader said.

"People are expecting softer jobless claims on the back of the weaker nonfarm numbers that we saw last week so the market is set up for a little bit of disappointment there."

Ten-year T-notes were last 2/32 up in price to yield 1.798 percent, down 1 basis point from late U.S. trade.

The 10-year yield rose around 6 bps on Wednesday, extending a bounce from this year's low of 1.677 percent set last Friday after the Bank of Japan announced huge stimulus measures, prompting flows into non-yen denominated assets.

Treasuries had come under pressure after the minutes of the Fed's March meeting showed that a few policymakers expected to slow the pace of asset purchases, currently at $85 billion a month, by mid-year and end them later this year. Several others expected to slow the pace a bit later and halt the quantitative easing programme by year-end.

Some analysts said it was unclear how quickly they could move as it was hard to tell just how strongly the U.S. labour market and housing market will recover over the next few months.

"Clearly the Fed is already talking about when they should end QE (quantitative easing) but much is going to depend on labour market conditions. They may wait until the end of the year before deciding," said Nick Stamenkovic, a strategist at RIA Capital Markets.

Japanese data on capital flows raised some questions on bets that the Bank of Japan's aggressive stimulus will prompt Japanese investors to increase their buying of Treasuries and other foreign bonds offering higher returns than domestic debt.

The data, however, showed Japanese investors sold a net 1.145 trillion yen ($11.5 billion) in foreign bonds last week, their biggest selloff in a year, as they cashed in gains at the start of Japan's financial year.

Nevertheless, analysts say Japanese investors were more likely to reinvest their money abroad to seek higher yields.

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