Yields on 10-year Treasuries decline to two-week low on jobs concern

Debt Exchange

Fewer Americans than projected filed applications for unemployment benefits last week as disruptions caused by hurricane Sandy waned, Labor Department figures showed today. Initial claims decreased by 25,000 to 370,000 in the week ended Dec. 1. The median forecast of 52 economists surveyed by Bloomberg called for a drop to 380,000.

Treasuries gained yesterday after President Barack Obama told business executives the global economy remains “soft” and the deadlock in Washington over taxes and spending is holding the U.S. back from leading a strong recovery. The fiscal cliff of $607 billion in tax increases and government spending cuts will start taking effect in early 2013 unless lawmakers act to avert it.

“The fiscal cliff is still driving the bus,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “There is a realization that both sides have marked lines and there have been no real negotiations, and this continues to have the market on edge.”

Treasury Auctions

The Fed is exchanging about $45 billion of short-term Treasuries from its holdings for longer-term debt each month under a program scheduled to end by Dec. 31.

The central bank plans to buy as much as $2.25 billion of securities maturing from February 2036 to November 2042 today. It’s also scheduled to purchase as much as $5.25 billion of debt due from December 2018 to November 2020.

The U.S. will sell $32 billion of three-year notes, $21 billion of 10-year securities and $13 billion of 30-year bonds over three days starting Dec. 11, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey.

Treasuries have returned 0.7 percent since the end of October, according to Bank of America Merrill Lynch indexes, compared with a 0.8 percent return for German bunds.

ECB’s Draghi said economic weakness in the euro area will persist into next year before a gradual recovery begins.

“Weak activity is expected to extend into next year,” Draghi said today at a press conference in Frankfurt after policy makers left the benchmark rate at a record low of 0.75 percent. “Later in 2013 economic activity should gradually strengthen,” supported by the central bank’s accommodative monetary policy, Draghi said.

Bloomberg News

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