April 4, 2013 / 8:11 PM / 6 years ago

TREASURIES-Bank of Japan plan, job jitters propel U.S. bond prices

* Bank of Japan steps up asset purchases to boost economy
    * Surprise jobless claims jump comes before key payroll data
    * JGB 10-year yields hit record lows, outperform Treasuries
    * U.S. 30-year bond yield breaks below 3 pct

    By Richard Leong
    NEW YORK, April 4 (Reuters) - The U.S. Treasury debt market
rallied on Thursday as investors sought higher-yielding dollar
assets after the Bank of Japan said it would step up asset
purchases to boost its economy, sending Japanese bond yields to
record lows.
    A surprise jump in domestic jobless claims undermined recent
optimism about an improving labor market and fueled bets the
Federal Reserve would cling to its own large-scale asset
purchase program this year to cut unemployment, analysts said.
    The latest weekly jobless claims, which climbed to the
highest since November, spurred concerns about the economic
outlook in the second quarter and helped drive a safe-haven bid
for Treasuries.
    These factors, together with lingering worries about the
euro zone debt crisis, propelled a wave of bond buying that sent
the yield on the 30-year Treasury bond below 3
percent for the first time since mid-January.
    "It's a sign that the quantitative easing cycle is very
entrenched and it's expanding in other parts of the world,"
Garth Friesen, co-chief investment officer at III Associates, a
hedge fund based in Boca Raton, Florida, said of Bank of Japan's
asset purchase plan. "This is favorable for dollar-denominated
    The benchmark 10-year Treasury note last traded
up 15/32 in price at 102-4/32, yielding 1.763 percent, down 5.3
basis points from Wednesday. The 10-year yield encountered chart
resistance in the 1.75 percent area, near its 200-day moving
    The 10-year U.S. Treasury note underperformed the 10-year
Japanese government debt whose yield fell to a
record low of 0.425 percent in reaction to the Bank of Japan's
scheme to buy 7 trillion yen ($73 billion) in assets a month.
    The Bank of Japan's move, worth $1.4 trillion, to jumpstart
the world's third biggest economy is seen as risky, akin to the
Fed's own bond-buying program currently at $85 billion a month.
    The BoJ is on track to expand its balance sheet at a monthly
clip of 1.25 percent of its gross domestic product, or 15
percent of GDP this year. This compares with the Fed's current
bond purchases, dubbed QE3, which is equivalent to 7 percent of
the U.S. GDP this year, according to analysts.
    A main goal of central banks buying assets is to lower
long-term borrowing costs and stimulate business and investment
activities. Another, which some analysts say is especially true
in the case of Japan, is to help exporters by depreciating its
currency to make goods and services cheaper abroad.
    Atlanta Fed President Dennis Lockhart said on Thursday the
BoJ's move to double its asset purchases - which will include
exchange-traded funds and real estate investment trusts in
addition to Japanese government debt - "if it works, will
certainly help everyone." 
    The BoJ is "doing what the Fed is doing in pushing people
into risky assets," said Kristina Hooper, head of investment and
client strategies at Allianz Global Investors in New York.
    It's too early to determine whether Bank of Japan's
perceived gamble will ultimately pay off. The Nikkei stock index
 jumped 2.2 percent on the day, while the yen tumbled
versus the dollar and the euro. 
    Some analysts, however, were skeptical. "The odds of success
are highly stacked against the experiment working," TD
Securities interest rate strategist Richard Gilhooly wrote in a
research note on Thursday.
    While investors mulled further over the longer-term impact
of BoJ's stimulus burst, they will quickly turn their focus to
Friday's U.S. payrolls report which could soothe some economic
worries if it were to show another month of at least 200,000
jobs gained.
    A few analysts downwardly revised their forecast on March
payrolls growth toward the 150,000 area after
surprisingly weak March readings in the ADP private jobs report
 and job component in the Institute for Supply
Management's services industry survey on Wednesday.
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