April 11, 2013 / 7:46 PM / 4 years ago

TREASURIES-U.S. bond prices rise, though Japanese bids elusive

* Bids in U.S. 30-year bond auction lackluster
    * Fall in U.S. jobless claims soothes some worries
    * U.S. 30-year bond yield hovers near 3 percent

    By Richard Leong
    NEW YORK, April 11 (Reuters) - U.S. Treasuries prices rose
on Thursday as a three-day rise in yields lured investors to buy
government debt both on the open market and at a $13 billion
auction of 30-year bonds, the final part of this week's $66
billion in longer-dated supply.
    Thursday's 30-year bond sale fetched lukewarm demand, and
the data of all three auctions this week suggested that an
anticipated surge in U.S. bond demand from Japanese banks,
insurers and pension funds has yet to materialize.
    The lackluster auction briefly shaved the bond market's
gains in the afternoon before another bout of bargain-hunting
emerged, but buying was limited by a high-flying stock market,
with the Dow Jones industrial average and the Standard &
Poor's 500 reaching all-time highs. 
    The bond market clung to earlier gains after a sell-off
earlier in the week drove longer-dated U.S. yields from their
lows of the year back to levels prior to last Friday's
disappointing U.S. government payroll report.
    The U.S. bond market rallied last week after the Bank of
Japan announced a bold $1.4 trillion asset purchase program
aimed at stimulating the country's sluggish economy. The news
sent Japanese government debt yields to record lows and fed bets
that Japanese investors would scramble for Treasuries and other
higher-yielding foreign bonds.
    This week's auction results "didn't suggest much of a pickup
in that bid," said John Canavan, market strategist at Stone &
McCarthy Research Associates in Princeton, New Jersey.
    Benchmark 10-year Treasury notes last traded
3/32 higher to yield 1.795 percent, down 1.0 basis point from
late on Wednesday.
    The 30-year bond last traded 2/32 higher to
yield 3.001 percent, down 0.4 basis point from Wednesday.
    The spread between 30-year and five-year yields held steady
on the day at 2.27 percentage points. It was tighter than 2.29
points a week ago after the BoJ announced its stimulus plan.    
    At Thursday's 30-year bond sale, indirect bidders that
include foreign central banks accounted for 31.44 percent of the
overall purchases of the second reopening of the bond issue,
which was the lowest in six months.
    Indirect bids at Tuesday's three-year debt auction and
Wednesday's 10-year note sale were below average.
    "We saw very little evidence of huge foreign buying at this
auction, and our analysis suggests it will occur over time
rather than be extremely front-loaded," Aaron Kohli, interest
rate strategist at BNP Paribas, wrote in a note.
    Treasuries prices earlier were little changed after data
showed the number of Americans filing new claims for
unemployment benefits fell more than expected last week.
    Although Analysts said seasonal factors such as Easter
played a role, the figures could soothe some fears that the
labor market recovery could be stumbling after
weaker-than-expected payrolls figures. The March payrolls
figures had pushed up Treasuries prices. 
    Looking ahead, Treasury yields might resume their climb if 
Friday's government report on retail sales comes in stronger
than expected and leads analysts to upgrade their forecasts on
first-quarter U.S. economic growth.
    The median forecast among economists polled by Reuters was
for retail sales to show no change in March after a 1.1 percent
jump in February. Consumer spending accounts for roughly
two-thirds of the U.S. economy.
    In the wake of the weak March jobs report and other recent
disappointing economic data, some analysts and fund managers
still expect U.S. yields to rise later this year as the economy
continues to improve and the Federal Reserve will likely signal
a slowing of its bond purchases by year-end.
    Michael Materasso, co-chair of the fixed income policy
committee at Franklin Templeton in New York, which has more than
$800 billion in assets, said the 10-year Treasury yield should
climb back above 2 percent. He said U.S. government debt is
still less appealing than higher-yielding investment-grade
corporate debt and mortgage-backed securities.

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