The Federal Reserve has lowered its projection for economic growth this year, spurring fears that the economy could continue to weaken despite January's interest rate cuts, Wednesday, Feb. 20, 2008. (AP / CBS)
NEW YORK (AP) -- Treasurys fell Thursday as a better-than-expected reading on unemployment and tame demand from investment banks for a $75 billion credit auction led investors to pare back their holdings in safe government securities.
The Labor Department said initial claims for unemployment benefits dropped by 9,000 to 366,000 last week, which was better than most economists anticipated.
Thursday's data did little to draw investors' money into stocks, though, with the four-week average of initial jobless claims rising by 1,750 to 358,000 last week - the highest it's been since October 2005. Wall Street dipped Thursday due to hard-to-shake economic worries, as well as disappointing sales and a cautious forecast from software maker Oracle Corp.
That jitteriness in the stock market led to some wobbly trading in Treasurys.
"It's been a pretty whippy, choppy session. That said, we're kind of ending up where we started after all is said and done," said Michael Wallace, global markets strategist at Action Economics.
Thursday afternoon, the Federal Reserve put $75 billion in credit up for auction to investment banks. Total bids submitted were $86.1 billion and $75 billion of those were accepted, and the "stop-out rate" - the lowest accepted bid rate - came in at 0.33 percent, up from the 0.25 percent minimum bid but lower than many investors anticipated.
"The market took it as a sign of lower stress in the financial system," Wallace said.
The benchmark 10-year Treasury note fell 23/32 to 99 20/32, and yielded 3.55 percent, up from 3.46 percent late Wednesday, according to BGCantor Market Data. Prices and yields move in opposite directions.
The 2-year note fell 21/32 to 100 2/32, with a yield of 1.72 percent, up from 1.62 percent late Wednesday.
The 30-year long bond fell 1 8/32 to 99 26/32, with a yield of 4.39 percent, up from 4.33 percent.
In after-hours trading, Treasury yields slipped back a bit. As of 5:30 p.m. Eastern time, the 10-year yield was at 3.52 percent, the 2-year yield was at 1.70 percent, and the 30-year yield was at 4.38 percent.
Treasurys have been under some pressure because further deterioration in the economy could mean more interest rate cuts. Lower rates normally encourage bond buying, but recently have been raising worries about inflation, which erodes the value of long-term bonds over time.
The Fed has already slashed its benchmark fed funds rate over the past six months to 2.25 percent from 5.25 percent.
"The feeling is when the economy bounces back, it will bounce back with much higher prices," said Kevin Giddis, managing director of fixed income at Morgan Keegan.
The Commerce Department issued on Thursday its final report on fourth-quarter gross domestic product, which showed growth at an annual pace of 0.6 percent. That was down sharply from the third quarter, but unchanged from the department's prior estimate.
The department upwardly revised its reading on the consumer spending component of the GDP data. Investors will want to see more up-to-date signs of a strong consumer in Friday's data on February personal spending and personal income.
On Thursday, before the Fed's $75 billion credit auction, the Treasury Department auctioned off $18 billion in 5-year notes on Thursday. The auction's rate of 2.595 percent suggested high demand, but only caused a brief lift in Treasury prices.
The 3-month Treasury bill had a yield of 1.31 percent, up from 1.26 percent late Wednesday, and a discount rate of 1.28 percent, up from 1.24 percent.