March 26, 2020 / 8:26 PM / 14 days ago

TREASURIES-Yields fall after record-high jobless claims

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By Kate Duguid

NEW YORK, March 26 (Reuters) - U.S. Treasury bonds yields fell modestly on Thursday morning after weekly applications for unemployment benefits surged to an all-time high, the muted response suggesting the market had already priced in expectations for an abysmal data release.

The number of Americans filing claims for unemployment benefits surged to a record of more than 3 million last week as strict measures to contain the coronavirus pandemic ground the country to a sudden halt, unleashing a wave of layoffs that likely brought an end to the longest employment boom in U.S. history.

The Labor Department’s jobless report is the clearest indication yet of the effects of the coronavirus on the economy. But bond yields had already fallen dramatically since the start of February, taking cues from the Federal Reserve’s extraordinary steps to bolster markets and the U.S. Congress’ $2 trillion stimulus package.

The benchmark 10-year U.S. Treasury yield was last 2.9 basis points lower to 0.830%, with the long bond roughly flat at 1.418%. At the short end, the two-year yield was 3.9 basis points lower at 0.287%. Yields move inversely to price.

“Jobless claims were terrible. I think the market thought it would be terrible so they got their number here,” said Stan Shipley, macro research analyst at Evercore ISI.

“You’ll probably get a bad number – maybe not as bad – next week and April payrolls will be terrible. We’re still several months away from this turning higher.”

The spread between the three-month and 10-year yields, the Fed’s preferred measure of the yield curve, flattened by about 4 basis points to 86 basis points on Thursday. A flatter yield curve is an indication of lower expectations for future growth. In this instance it also reflects a three-month Treasury bill trading at a negative yield.

Continued strong demand for the safe and highly liquid short-term debt sent the three-month yield to minus 0.058% on Thursday, and the one-month yield to minus 0.117%, both all-time lows.

Also on Wednesday, the U.S. Treasury sold $32 billion of new seven-year notes to strong demand. The bid-to-cover ratio, a metric of overall demand, was 2.76 versus an average of 2.45. But primary dealers, who must absorb any supply not bought by direct and indirect buyers, took a higher than average percentage of the pool at 28.6%.

The “auction was very strong considering all the dislocations and volatility in the markets. But the Fed’s backstops and some ongoing demand for safety and yields helped underpin,” wrote Kim Rupert an analyst at Action Economics. (Reporting by Kate Duguid; Editing by David Gregorio and Marguerita Choy)

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