Right now the bond market resembles a wildebeest in the Serengeti. It may escape the hungry employment lion tomorrow, or it may be devoured. Today, it's going to graze peacefully.

Treasury securities were slightly lower in morning trading Thursday, with the brunt of the selling coming in the 10-year and five-year maturities. Volume was light; tracker

GovPX

reported trading volume down 11% compared with the average first quarter Thursday last year.

Lately the 30-year Treasury bond was down 2/32 to trade at 93 18/32, yielding 5.70%. The 10-year note was down 9/32 and the five-year note fell 4/32. Hedge-fund buying reportedly was propping up the 30-year bond.

Selling in the intermediate maturities was attributed to mortgage investors selling Treasuries previously hedged against prepayment risk, as well as hedge-fund selling. When interest rates fall, more people prepay their mortgages. Investors who have bought mortgages -- packaged into securities -- therefore see a large portion of their portfolios converted to cash, which doesn't earn anything. During last year's massive rally these investors were heavily invested in Treasury securities to hedge against those prepayments.

Now, the opposite is happening, and even though yesterday's mortgage application survey didn't fall, "as yields go up, there's a continuous need to keep selling

Treasuries because of the slower prepayment speed," said Tony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch

. "It's is likely to be a trend."

Selling in the 10-year is also often attributed to a dealer hedging Treasuries in preparation of a large corporate offering. However, the largest 10-year deal on the horizon,

AT&T

's

(T) - Get Report

deal to finance its purchase of

TCI

(TCOMA)

, isn't expected for the week after next. Crescenzi said AT&T is likely to sell as much as $10 billion, which would be a record for a corporate offering.

More evidence of strength in the labor market prompted some early selling.

Initial jobless claims

fell to 286,000, and the four-week moving average fell to 290,750, a record low for this economic expansion.

High Frequency Economics'

Ian Shepherdson, who has generally been on the high side when forecasting payroll figures, believes the

Labor Department

could print a February payroll increase of greater than 400,000. "This would be enough to ensure further sharp declines in the unemployment rate, which we expect to slip below 4% by the end of the year," his comment said.

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