By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices turned lower Thursday, pushing long-term yields up, after the Philadelphia Federal Reserve said its index on manufacturing activity in the region contracted at a slower pace this month.
Bonds had been slightly higher after the government reported a modest decline in U.S. weekly jobless claims and a rise in wholesale prices.
Yields on 10-year notes (UST10Y 2.76, +0.04, +1.32%) rose 3 basis points to 2.75%, after dipping to 2.67% earlier. Yields move in the opposite direction to prices, and a basis point is 0.01%.
Yields on 2-year notes (UST2YR 0.48, -.00, -0.83%) were little changed at 0.48% after touching the all-time low of 0.45% earlier in the session.
The Philadelphia Fed’s manufacturing index was -0.7 in September, an improvement from the -7.7 reading in August. Economists expected the reading to turn positive, indicating expansion in activity. Read about Philly Fed.
Analysts at Action Economics also noted that hedging activity related to a continued deluge of corporate bond sales could keep pressure on Treasury debt.
Earlier, bonds rose after the Labor Department said first-time claims for unemployment benefits fell 3,000 to 450,000, a level that is still considered elevated. Read more about jobless claims.
A separate report showed that producer prices rose 0.4% in August. See more on producer prices.
Fed speculation
Losses may be limited amid ongoing chatter that the Federal Reserve could be increasingly inclined to resume large-scale bond purchases in the near future.
In March 2009, the U.S. central bank announced it would buy $300 billion in Treasury bonds. Some analysts have said they expect the Fed to buy closer to $1 trillion if it restarts asset purchases.
“There appears to be a growing group, including RBS traders and strategists, who believe that even a sideways chop in growth, inflation and employment data should be enough to elicit additional easing measures because the Fed is already so deeply in arrears on their mandates for inflation and employment,” said Bill O’Donnell, head of Treasury strategy at RBS Securities.
The Fed’s policy-setting committee meets next week.
Separately, the Fed has been buying smaller amounts of Treasurys as part of a plan to recycle cash from maturing mortgage-bond holdings -- also bought during the credit crisis to support the housing market -- back into the markets.
The Fed will purchase bonds maturing from 2012 to 2103 later in the morning.
Because the U.S. central bank has tended to purchase more medium- to longer-term maturities, CRT Capital Group strategists expect it to buy about $1.5 billion.
