TREASURIES-Prices drop after Fed surprise, jobless claims
* Fed surprisingly keeps $85-billion monthly bond purchases
* Benchmark yields edge off one-month lows
* U.S. jobless claims trend unclear because of backlogs
By Luciana Lopez
NEW YORK, Sept 19 (Reuters) - Prices for U.S. Treasuries fell on Thursday, after a jump in the previous session, when the U.S. Federal Reserve surprised markets by keeping its massive bond-buying program intact.
Markets had expected the Fed to slow its purchases of $85 billion per month in Treasuries and mortgage-backed securities. When policymakers held their buying pace steady, investors went on their own buying spree, pushing up prices for stocks and bonds around the world.
The Fed pointed to worries about the strength of the world's biggest economy in its decision, saying it wanted to wait for more proof of solid, sustainable growth.
Indeed, recent data underscored the patchy nature of the U.S. economic recovery. Data Thursday showed U.S. home resales surged in August to a 6-1/2-year high and factories grew busier early this month in the Mid-Atlantic region. Yields spiked briefly on those data, which suggested a stronger economy.
In contrast, jobs figures Thursday reinforced uncertainty; data showed jobless claims rose last week, but backlogs in two states made it hard to get a clear reading on the labor market's health.
"It's NFP (nonfarm payrolls) survey week, so it's going to go into everyone's model, so it matters. Are people going to put a standard of error around that? They should," said Ian Lyngen, senior government bond strategist at CRT Capital.
But the backlogs complicate estimating a path for next week's data, he said.
The price gains in Treasuries that immediately followed the Fed's decision Wednesday faded on Thursday.
"I'm not at all surprised to see some pushback, but I clearly think the path is open for further richening of the belly and lower rates over the next 2-3 months," said William O'Donnell, head Treasury strategist at RBS Securities in Stamford, Connecticut.
Intermediate-dated Treasuries had reacted sharply Wednesday as markets saw the Fed keeping its key interest rate near zero for longer than expected. Benchmark 10-year notes slid 11/32 in price to yield 2.732 percent, from 2.699 percent late on Wednesday. Those yields fell as low as 2.673 percent on Wednesday, the lowest since Aug. 13.
"The Fed might remain more cautious until growth actually materializes," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee, in a note to clients. "Expected growth is not quite the same thing as reality, it seems."
Thirty-year bonds dropped 18/32 in price to yield 3.779 percent, from 3.747 percent late on Wednesday.
Yields for benchmark 10-year notes have jumped more than 100 basis points from 1.60 percent at the beginning of May, when Fed policymakers first suggested they were eyeballing an exit to their extraordinary measures.
But while most analysts and economists thought the Fed was all but certain to taper on Wednesday, policymakers' surprise move caused a sharp turnaround in prices.
As part of its so-called quantitative easing purchase program, the Fed on Thursday bought $3.296 billion in notes due 2020 to 2023.
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