TREASURIES-U.S. yields slide after jobless claims, but massive supply looms

BY Reuters | ECONOMIC | 04/08/21 10:48 AM EDT
       By Gertrude Chavez-Dreyfuss
    NEW YORK, April 8 (Reuters) - U.S. Treasury yields fell on
Thursday, pressured by worse-than-expected initial jobless
claims and continued short-covering following a sell-off in the
last month that took benchmark 10-year rates to more than
one-year peaks.
    Dovish Federal Reserve minutes released on Wednesday, which
reiterated that the U.S. central bank was in no rush to raise
interest rates, also weighed on Treasury yields.
    Thursday's higher-than-expected U.S. jobless claims further
pushed yields lower. Initial claims for state unemployment
benefits totaled a seasonally-adjusted 744,000 for the week
ended April 3, compared with 728,000 in the prior week.
Continued unemployment claims though fell to 3.73 million for
the week of March 27.
    "Falling incidence of the coronavirus will lower initial
claims," said Stan Shipley, fixed income strategist, at Evecore
ISI in New York. He added that overall the data showed the
"labor market is continuing to heal and should be neutral for
Treasury yields."
    But with a massive $370 billion in Treasury supply looming
over the next few weeks, analysts said it's only a matter of
time before yields start shooting higher again.
    Supply starts next week with the auction of 3-year, 10-year-
and 30-year debt.
   "Back-to-back supply for the next three weeks with no break,
and I would think rates have to move higher by next week from
today's levels," said Tom di Galoma, managing director at
Seaport Global Holdings. "In my view, 10-year yields could
easily trade back to 1.75% next week."
    Concerns about supply have steepened the yield curve for the
last three sessions, but it flattened a bit on Thursday. The
spread between 5-year notes and 30-year bonds narrowed to 147.60
basis points.
    In midmorning trading, the U.S. 10-year Treasury yield was
down at 1.64% from 1.654% on Wednesday.
    U.S. 30-year yields fell to 2.325% from
Wednesday's 2.336%.
    U.S. 5-year note yields, which typically reflect interest
rate expectations, dropped for a fourth straight session to
0.849% from Wednesday's 0.858%.
    Recent declines in the 5-year yield suggested that investors
do not believe the Fed will raise rates earlier than expected.
At the March meeting, the Fed said it did not expect to raise
interest rates until 2024.
    Despite the Fed's dovish comments in the policy meeting
minutes, the eurodollar futures market, which tracks interest
rate expectations, still has fully priced in a Fed hike by March
    In the aftermath of the strong U.S. non-farm payrolls report
last Friday, eurodollar futures show a 100% chance of rate
increases by December 2022.

      April 8 Thursday 10:36AM New York / 1436 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.015        0.0152    0.000
 Six-month bills               0.0325       0.033     0.003
 Two-year note                 99-244/256   0.1488    -0.004
 Three-year note               99-206/256   0.317     -0.005
 Five-year note                99-138/256   0.8448    -0.013
 Seven-year note               99-164/256   1.3041    -0.013
 10-year note                  95-84/256    1.6404    -0.014
 20-year bond                  94-88/256    2.2291    -0.011
 30-year bond                  90-96/256    2.3238    -0.012

                               Last (bps)   Net
 U.S. 2-year dollar swap        12.75        -0.50
 U.S. 3-year dollar swap        15.75        -0.25
 U.S. 5-year dollar swap        12.00        -0.25
 U.S. 10-year dollar swap        2.25        -0.75
 U.S. 30-year dollar swap      -24.50        -1.00

 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan

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