Treasuries edge lower in Europe

LONDON (BestGrowthStock) – U.S. Treasuries edged lower in Europe with stock market futures pointing to a higher open on Wall Street as market participants awaited reports on weekly jobless claims and manufacturing activity later in the day.

* But yields remained close to multi-month lows as demand for Treasuries stayed strong on the back of concerns over the global economic recovery and particularly among Japanese investors who are hungry for better returns with the benchmark 10-year Japanese bond yield hitting a seven-year low of 0.9 percent this week.

* Japanese government data showed on Thursday that Japanese investors bought a net 2.18 trillion yen ($25.6 billion) of foreign debt in the Aug 8-14 week, the largest amount since the government started gathering weekly capflows data in January 2005. Market players believe Treasury buying makes up the majority of Japanese investors’ foreign debt purchases, helping U.S. government bond yields to fall.

* At 0935 GMT (5:35 a.m. EDT), benchmark 10-year Treasury yields were up 2.5 bps at 2.663 percent. The 10-year yield hit a 17-month low of 2.563 percent on Monday. T-Note futures were 9/32 lower at 125-21/64.

* “There’s definitely been some longs unwound today. We struggled to find a bit of a bid this morning, and some people were stopped out as we made new lows,” said a trader.

* The two-year yield stood at 0.504 percent, within sight of an all-time low of 0.492 percent reached earlier this week, according to Reuters data.

* Thirty-year notes outperformed with yields flat at 3.739 percent. The prospect of interest rates staying low for a long time given the Fed’s resumption of Treasury purchases has led to demand for longer-dated assets from asset liability managers, pushing rate curves flatter.

* Economists expect initial claims for jobless benefits for the week ended August 14 to have decreased to 476,000 from 484,000 the previous week. An improvement in the labor market could spark profit-taking on Treasuries, which are already expensive, traders said. But any worsening could strengthen the view that interest rates are set to stay low for a long time.

* “A further increase in weekly jobless claims would reinforce worries about the U.S. labor market outlook, threatening a further decline in consumer confidence and softer personal income growth,” said Nick Stamenkovic, rate strategist at RIA Capital. “This would not bode well for consumer spending in the second half of 2010, keeping the Fed on hold for a considerable period.”

* The market will also look to the Philadelphia Federal Reserve’s gauge of factory activity. Economists expect business activity to rise to 7.0 for August from 5.1 in July. Any reading above zero indicates expansion in the region’s manufacturing.

* The Federal Reserve will announce the sizes of next week’s debt auctions later in the day, while the central bank will buy Treasuries with maturities ranging from August 2016 through August 2020. The Fed said last week it would reinvest funds from maturing mortgage holdings into Treasuries to help the economy.

Treasuries edge lower in Europe