Treasuries fluctuate as jobless claims rise, inflation subdued

June 14 (Bloomberg) -- Treasuries fluctuated as reports showing weekly claims for U.S. jobless benefits unexpectedly rose and inflation remained subdued added to speculation the Federal Reserve will seek to provide more monetary stimulus.

Thirty-year bond yields had led losses as investors prepared for what may be a record low yield on today’s U.S. sale of $13 billion of the securities. An auction of 10-year notes yesterday drew a record low yield as investors continue to seek a refuge from Europe’s financial crisis.

“We’ve seen Treasuries come back from higher yields, but at the same time, we don’t expect a real rally until we get past the supply,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “It’s always tricky with the 30-year, but we’ll probably see good sponsorship.”

The 30-year yield increased one basis point, or 0.01 percentage point, to 2.72 percent at 10:39 a.m. New York time after rising earlier as much as three basis points and falling one basis point, according to Bloomberg Bond Trader prices. The yield has slid about 70 basis points over the past three months.

The 10-year yield increased three basis points to 1.62 percent after touching 1.59 percent earlier.

As the Treasury prepares to auction long bonds, the Fed will buy as much as $2.25 billion of Treasuries today due from February 2036 to May 2042 as part of its Operation Twist program. The central bank is replacing $400 billion of shorter- term securities in its holdings with longer-term bonds through this month to keep borrowing costs down.

Policy Function

“It’s not a situation where the Treasury is selling directly to the Fed, thereby printing dollars to fund government consumption, but rather a function of the Fed’s easy monetary policy as it manifests itself in buying to flatten the Treasury curve,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

The U.S. 30-year bonds being sold today yielded 2.73 percent in pre-auction trading, compared with 3.09 percent at the previous sale on May 10 and a record auction low of 2.925 percent in December.

Treasuries pared losses after data showed claims for jobless benefits in the U.S. unexpectedly climbed by 6,000 to 386,000 in the week ended June 9 from a revised 380,000 the prior week that was more than first estimated, Labor Department figures showed today in Washington. Economists projected claims would fall to 375,000, according to the median estimate in a Bloomberg News survey.

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