Long-Term Treasuries Rise After Jobless Claims Data Released

By Yi Ping Ho ,

Long-term government securities climbed today, amid a Treasury

buyback and the latest weekly

initial jobless claims report, which triggered some weakness in the short end of the market.

The two-year note fell after this morning's data was released by the

Labor Department

and was lately unchanged at 100 16/32, with a yield of 3.970%. Yields and prices move in opposite directions. Two-year yields last week fell below 4% for the first time since October 1998 during the Russian debt crisis and global financial worries. On the longer end of the market, which tends to be more sensitive to inflation, the 10-year Treasury note gained 6/32 to 98 19/32, lowering the yield to 5.186%. The 30-year Treasury bond rose 11/32 to 96 7/32, yielding 5.638%.

Market watchers said this morning's better-than-expected jobless data raised doubts that the

Federal Reserve would keep cutting interest rates as aggressively as it has already this year. Most experts expect the central bank to lower rates by 25 basis points next week, but some believe the chance of a 50-basis-point cut is far from dead.

Initial jobless claims fell by 34,000 in the week ended June 16, well below the number of claims expected. The number of claims the previous week was revised up to 434,000 from 428,000 initially. According to

BondTalk.com

, the lower-than-expected claims data may be due to Hurricane Allison, which could have prevented some from filing claims. And continuing claims hit 2.99 million, the highest level since November 1992.

"There are some economists that look at it and say unemployment claims came down and that the labor market is strengthening. I do not agree," said Michael Strauss, managing director and senior economist at

Commonfund

, a Wilton, Conn., nonprofit organization that manages more than $26 billion for educational and other nonprofit institutions. "I would focus on the total number of people making jobless claims. It's now hovering around 3 million individuals. A number near 3 million is typically associated with an unemployment rate closer to 5% than the current 4.4%."

The

Philadelphia Fed Index, a monthly regional manufacturing business outlook survey released by the Philadelphia Fed, rose to -3.7 in June from -8.8 in May, ahead of expectations for a decline to -10.

Bond traders said earlier weakness in the Treasury market was absorbed by the Treasury

buyback. The Treasury announced Wednesday that it will sell $11 billion of two-year notes at its next auction on June 27 and buy back up to $1.75 billion of longer-dated Treasuries on Thursday.

On the whole, observers expect the fixed-income market to stay strong ahead of next week's

Federal Open Market Committee meeting on June 26-27.

Alan Greenspan and his team have reduced interest rates by 250 basis points this year.

"My anticipation is for a 50-basis-point cut, as subsequent economic data has been weak," said Scott Graham, a bond trader

Greenwich Capital

. "Coupled with the fact of a month-end buying next week, I'm expecting a continued rally."

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