* Treasuries drop as yen moved through 100 vs dollar
* Losses extended as yields move above technical resistance
* Traders say higher yields could draw buyers next week
By Ellen Freilich
NEW YORK, May 10 Prices for U.S. Treasuries fell
on Friday, pushing yields to their highest levels in about a
month in a half, after the dollar shot up past the key 100-yen
mark and spurred selling in longer-dated government debt.
The yen's weakening against the dollar prompted selling of
Japanese government bonds, and Treasuries, bunds and gilts "sold
off in sympathy with JGBs," said Thomas di Galoma, senior vice
president and head of fixed income rates sales at E D & F Man
Capital Markets in New York.
The selloff in Treasuries drove yields through some key
technical levels, said John Canavan, fixed income analyst at
Stone & McCarthy Research Associates, citing resistance at the 3
percent to 3.02 percent area on 30-year yields, the 1.80 percent
to 1.82 percent area on 10-year yields, and the 1.20 percent to
1.22 percent area on 7-year yields.
That encouraged more selling, analysts said.
Some selling was related to "huge" corporate supply due to
come to market next week, said Todd Colvin, senior vice
president of global institutional sales at R.J. O'Brien and
Associates in Chicago.
The benchmark 10-year note was down 25/32 in
price during the afternoon in New York, its yield at 1.900
percent, up from 1.81 percent late on Thursday.
The 30-year bond fell 1-20/32 in price as its yield
rose to 3.102 percent from 3 percent late on
Bill Gross, manager of the world's largest bond fund, said
on Friday the 30-year bull market in fixed income had come to an
end, not just in U.S. Treasuries, but "to all bonds," including
high yield debt, citing a "gut feeling" that the bull market
ended on April 29. That said, the PIMCO Total Return Fund, which
Gross oversees, in April increased its holdings in U.S.
Treasuries to 39 percent of its portfolio, the highest in a
Still, analysts said major questions about the health of the
labor market remain unanswered.
"The key thing to watch is employment," said Jim Sarni,
managing principal of Payden & Rygel.
"The prospects for employment, the Fed has said over and
over again (that) is going to be the determinant of a change in
QE and monetary policy," he added.
U.S. Federal Reserve policymakers say they want to see
unemployment closer to 6.5 percent from its current 7.5 percent.
The evolution of that jobless rate is a major factor for
investors trying to gauge when the Federal Reserve could pare
its $85 billion per month in Treasury and mortgage-backed
securities purchases, a bid to support the U.S. economy and
Weak economic data had quieted talk about the Fed tapering
off those purchases, but it has been revived by the
better-than-forecast April employment report released a week
ago, upward revisions to payroll growth for prior months and
lower numbers of Americans filing for unemployment insurance
Nevertheless, a well-received auction of 30-year bonds on
Thursday indicated that higher yields would likely bring in new
buyers next week, market participants said.
"There's much more interest in buying from banks and
insurers and other large market participants around these
levels," said Jake Lowery, portfolio manager with ING U.S.
Investment Management in Atlanta, Georgia. "We saw that come
into play in the 10- and 30-year auctions this week and there's
likely more buying to be done."
Dan Heckman, senior fixed-income strategist at U.S. Bank
Wealth Management in Minneapolis, said Treasury yields had
gotten a little too low and that translated into some weakness
in the bonds this week after the better than expected April U.S.
employment report was released last Friday.
The stronger April employment figures were followed by "the
nice improvement in the new jobless claims data released this
week," he said. That encouraged people to start to move out of
Treasuries, which, along with this week's refunding supply,
helped move yields back up to levels to where there will be
greater buying interest next week, he said.
Heckman said that while some observers think 10-year yields
could rise to 2.25 percent by mid-year, he was more cautious.
"We don't buy that outlook yet. With the payroll tax cut,
businesses we talk with get a sense the consumer is a little
more cautious here; and we've seen gasoline prices move back
up," he said. "There's a limit as to how high yields will go
when there is still no inflation threat."