Treasuries Give Back Ground After Yesterday's Surge

(RTTNews) - Following the substantial rebound seen over the course of the previous session, treasuries gave back some ground during trading on Thursday.

Bond prices climbed off early lows after an initial move to the downside but remained firmly negative. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose 4.2 basis points to 3.747 percent.

The ten-year yield regained ground after plunging by 25.9 basis points on Wednesday but remained well off Tuesday's twelve-year highs.

The pullback by treasuries came as the buying interest generated by the Bank of England's bond market intervention quickly evaporated.

Bond traders also reacted negatively to the latest U.S. economic data, including a report from the Labor Department showing first-time claims for U.S. unemployment benefits unexpectedly fell to a five-month low last week.

The report points to continued strength in the labor market, potentially giving the Federal Reserve confidence that it can continue to aggressively raise interest rates.

The report showed initial jobless claims slipped to 193,000 in the week ended September 24th, a decrease of 16,000 from the previous week's revised level of 209,000.

The dip surprised economists, who had expected jobless claims to inch up to 215,000 from the 213,000 originally reported for the previous week.

With the unexpected decline, jobless claims dropped to their lowest level since hitting 181,000 in the week ended April 23rd.

"While overall economic activity is expected to slow in response to sharply higher interest rates and a weakening global backdrop, the low level of claims is a reminder that labor market conditions remain extremely tight even as we head toward a mild recession next year," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

"The imbalance between the supply and demand for workers, which is putting upward pressure on wages, is a key factor behind the Fed's plans to continue aggressively raising interest rates," she added. "We expect the Fed to raise rates another 125bps this year."

A separate report from the Commerce Department showed the annual rate of growth in core consumer prices in the second quarter was upwardly revised to 5.0 percent from 4.8 percent.

"To the extent that there are any clear implications for the Fed, that will further support officials' current hawkish stance," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

The surge in core consumer prices, which exclude food and energy prices, was still slightly slower than the 5.3 percent spike in the first quarter.

A report on personal income and spending is likely to be in focus on Friday, as the report includes a reading on inflation said to be preferred by the Fed.