Treasuries snap 4-day rally as jobless claims less than forecast

Treasury 10-year notes fell as a government report showed U.S. initial jobless claims were lower than forecast, boosting speculation the employment market may be recovering.

The yield on the benchmark security rose for the first time in five days before the Federal Reserve releases minutes of its Sept. 12-13 meeting amid speculation monetary stimulus will bolster the U.S. economy and stoke inflation. European Central Bank President Mario Draghi said the bank is ready to start buying government bonds as soon as the necessary conditions are fulfilled after policy makers left the key lending rate unchanged. Payrolls increased by 115,000 in September the Labor Department may report tomorrow, according to the median forecast of economists surveyed by Bloomberg.

“We’re at the upper end of the range in prices and, with payrolls tomorrow, people are taking a little bit of risk of,” Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of the 21 primary dealers that trade with the Fed. “Given the policies of quantitative easing and the weak economy, the market has basically stopped trading.”

The yield on 10-year notes rose three basis points, or 0.03 percentage point, to 1.64 percent at 9:29 a.m. New York time, according to Bloomberg Bond Trader prices.

Applications for jobless benefits increased 4,000 to 367,000 in the week ended Sept. 29, Labor Department figures showed today. The median forecast of 51 economists in a Bloomberg News survey was for a rise in initial jobless claims to 370,000.

‘Reduce Demand’

The Fed said Sept. 13 that it will buy $40 billion of mortgage bonds a month under its quantitative-easing strategy until the U.S. sees what Chairman Ben S. Bernanke described as an “ongoing, sustained improvement in the labor market.” The central bank also said it will probably hold the federal funds rate near zero at least through mid-2015.

“The U.S. economy may be subdued, but it’s not falling off the cliff,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “As investors become more confident that the central bank will continue to ensure that we get out of this low-growth environment, then they will probably focus on inflation risk rather than deflation risk. This will reduce demand for longer- dated Treasuries.”

Bloomberg News

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