A surge in new claims for unemployment insurance pushed Treasury prices higher yesterday and late in the afternoon, the 30-year bond was up 3/8 point to yield 8.46%.
The unexpectedly large rise in claims was one of the first weak statistics the market has seen in recent weeks, and it offered bond traders some hope that the economic recovery will be modest.
Another positive factor yesterday morning was IBM's announcement that its second-quarter earnings would be weak.
That news bolstered hopes for a lackluster recovery and also caused some participants to expect stock prices would post big losses and push investors into Treasuries.
The Labor Department said new claims for jobless benefits surged 47,000, to 448,000, in the week ended June 8.
The market had expected some bounce back from the previous week's 38,000 decline, since that
Treasury Market Yields
Thursday Week Month
3-Month Bill 5.71 5.74 5.53
6-Month Bill 5.98 6.06 5.85
1-Year Bill 6.29 6.37 6.08
2-Year Note 6.83 7.02 6.73
3-Year Note 7.31 7.42 7.07
4-Year Note 7.50 7.61 7.30
5-Year Note 7.88 7.97 7.70
7-Year Note 8.13 8.19 7.94
10-Year Note 8.27 8.31 8.09
20-Year Bond 8.47 8.50 8.30
30-Year Bond 8.46 8.50 8.30
Source: Cantor, Fitzgerald/Telerate
week included Memorial Day and holidays tend to depress claims figures. But the 47,000 rise was well above the 27,000 consensus forecast.
In addition to the higher-than-expected new claims figure, the number of people receiving state benefits rose 136,000, to 3.6 million, which could indicate unemployed workers are having a hard time finding new jobs.
"Even though the trickle going into the bathtub is beginning to slow, the drain is stopped up," said Sally Kleinman, a financial markets analyst at Manufacturers Hanover.
But Ms. Kleinman cautioned that the benefits number, which is reported with a lag, may have been distorted by Memorial Day, just as the new claims figure was last week.
Because of the holiday, "there were only four days in which to tell them you had a job and get off the rolls," she said.
Ms. Kleinman expects the downward trend in new claims to resume, although she said there may be problems over the summer with the seasonal adjustment factors because auto companies are changing the timing of their model year changeovers. The companies lay off workers while they adjust their plants for the new models.
But Steven Wood, director of financial markets research at the Bank of America, said the market overreacted to the claims data, which he described as a "pothole on the road to recovery."
Even if the recovery has started, "we're only at the beginning and one would not anticipate that every economic statistic would be positive," he said.
The Treasury market revisited its highs in mid-afternoon on a short-covering squeeze, deteriorated abruptly going into the close of futures, then bounced a little late in the afternoon.
Mr. Wood expects prices to head lower into next week's auctions of two-year and five-year notes. "Once people begin to think about supply again, that's going to weigh on their consciousness."
Ahead of the auctions, the market faces this weekends' meeting of the finance ministers and central banks from the Group of Seven industrialized nations, but Mr. Wood said the gathering should not affect Treasury prices.
"The meeting is unlikely to make a significant announcement that will change anyone's opinion of interest rates or the dollar," he said.
U.S. Treasury Secretary Nicholas Brady is expected to call for lower worldwide interest rates, but since Germany is worried about inflation and Japan's economy is still growing at a reasonable rate, the two countries probably will not comply, Mr. Wood said.
"The strong currency right now is the dollar, which suggests the U.S. should lower interest rates," he added. "But since we're on the verge of a recovery, it seems unlikely the Fed is going to lower short-term interest rates."
Overnight in Europe, a German official calmed any fears traders might have had about the G-7 meeting when he said he did not expect the group to come up with any "concrete" statement on foreign exchange rates.
Bundesbank president-elect Helmut Schlesinger said the German central bank was not happy about the current dollar-mark rate, "but it could be worse."
Mr. Schlesinger acknowledged that G-7 meetings usually result in a statement, but said he did not expect anything "particular or concrete."
The most interesting news today will be the Philadelphia Federal Reserve's monthly survey of local businesses.
During the afternoon, the government will report on the May federal budget. Economists surveyed by The Bond Buyer on average expect a $ 49.2 billion deficit. The government ran a $ 42.5 billion gap last May and a $ 25.4 billion deficit in May of 1989.
The September bond future contract closed 11/32 higher at 92-31/32.
In the cash market, the 30-year 8 1/8% bond was 7/16 higher, at 96 7/32 - 96-11/32, to yield 8.46%.
The 8% 10-year note rose 9/32, to 98 2/32-98 6/32, to yield 8.27%.
The three-year 7% note was up 1/16, at 99-4/32 - 99-6/32, to yield 7.31%.
Rates on Treasury bills were lower, with the three-month bill down one basis point at 5.56%, the six-month bill down two basis points at 5.7%, and the year bill off two basis points at 5.94%.
In other news, a spokesman for the Federal Reserve Bank of New York reported at the weekly press briefing that the nation's M1 money supply rose $5.9 billion, to $856.5 billion in the week ended June 10; the broader M2 aggregate gained $13.3 billion, to $3.4 trillion; and M3 surged $10.9 billion, to $4.2 trillion, in the same period.
Also, for the week ending Wednesday, the federal funds rate averaged 5.78%, up from 5.75% the previous week, according to the New York Fred.