November 24, 2010 / 6:44 PM / 7 years ago

Bonds tumble on stock gains, weak auction

NEW YORK (Reuters) - The U.S. Treasuries market stumbled on Wednesday as data that signaled improving labor conditions boosted stocks and eroded the safe-haven appeal of government debt.

Compounding the market selloff was weak bidding for $29 billion in seven-year notes, part of this week’s $99 billion in coupon-bearing supply.

Traders more than took back Treasuries price gains made Tuesday when renewed tensions on the Korean peninsula and worries over fiscal troubles in Ireland and Portugal spurred flight-to-safety buying.

Amid a raft of economic data, which overall painted a relatively mixed picture of the state of the economy, the fall in jobless claims stood out. The government said new U.S. claims for unemployment dipped to the lowest in more than two years last week.

“There is some weakness because we had that good initial jobless claims number and it is countering that flight-to-quality bid that Treasuries have enjoyed over the last couple of days,” said David Coard, head of fixed-income sales and trading at Williams Capital Group in New York.

U.S. benchmark 10-year Treasury notes were trading 30/32 lower in price to yield 2.89 percent, up from 2.78 percent late Tuesday. The note briefly traded a point lower in price, with its yield dipping to 2.75 percent.

“A blizzard of data this morning ahead of the Thanksgiving holiday, (but) one thing stands out -- weekly jobless claims are tumbling,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. “This is exactly what it looks like when the labor market springs back to life after the end of a recession.”

Within the selling, seven-year notes were 23/32 lower in price to yield 2.20 percent, up from 2.08 percent late Tuesday. “The street is beating (seven-year notes) up ahead of the auction,” Williams’ Coard said.

Wednesday’s seven-year auction rounded out this week’s debt sales. The overall bidding for the seven-year issue due November 2017 was the lowest since March, while the yield cleared at a level higher than traders had expected.

Apart from jobless claims, economic data was mixed.

Consumer spending rose for a fourth straight month in October, while new orders for long-lasting U.S. manufactured goods unexpectedly fell last month. Consumer sentiment picked up more than expected in November, but new home sales unexpectedly fell in October.

The focus on jobless claims helped to send Wall Street stocks indexes more than 1 percent higher. .N

The U.S. bond market will shut on Thursday for the Thanksgiving holiday and will reopen for abbreviated trading on Friday.

Next price support for 10-year notes was seen in the 3.02 percent to 3.06 percent range, with price resistance at 2.73 percent, said William O‘Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut.

The 30-year bond slid 1-6/32 lower in price to yield 4.27 percent, up from 4.19 percent late Tuesday.

Additional reporting by Richard Leong; Editing by Kenneth Barry

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