Initial Jobless Claims drop to lowest level in 3 months

Treasury prices dropped for most of the day Wednesday as the Durable Goods Orders grew at 3.30% versus the expected 2.00%. Additionally, a weaker than expected Treasury auction continued the negative performance of Treasuries for the day. Equities also declined yesterday and the Dow Jones Industrial Average ended with a 43 point loss to close at 11,126. The 2-year note lost 1/32 to yield 0.41% while the 5-year Treasury declined 5/32 to yield 1.31%. The benchmark 10-year note dropped 22/32 for a 2.72% yield. Finally, the long bond lost 1 and 1/32 points to yield 4.06%.

Treasury prices are reacting to this morning’s better than expected Jobless Claims report. Currently, the 2 year note has recovered 2/32 to yield 0.38% while the 5-year note has gained 7/32 yielding 1.29%. Meanwhile, the 10-year note has increased 6/32 in value to yield 2.69% and the 30-year bond is trading flat yielding 4.06%. In signs that the labor market may be stabilizing, this morning we have the Department of Labor’s release of its weekly Initial Jobless Claims report showing that first time claims dropped more than expected during the latest week to 434,000; analysts were expecting claims to remain flat at 455,000. This is the lowest level for the initial claims report in three months. Additionally, Continuing Claims continued to drop to 4.356 million versus the expected 4.430 million. This represents a drop of 122,000 from the previous week, which was upwardly revised to 4.478 million versus 4.441 million. The more stable 4-week average number of initial claims also dropped to 453,250 versus the 458,750 number registered previously.

In other economic releases for the day, the Federal Reserve will continue with QE (Quantitative Easing) in an effort to keep rates low and boost economic activity. This time around it is expected the Fed will buy Treasuries in the 2012-2013 maturity range. The total amount purchased to date is $60.67 billion. Finally, the Treasury department will auction $29 billion of a 7-year note at noon Central Time. This culminates a very busy week in which Treasury launched 3 auctions and 1 reopening totaling $109 billion.

Source: Bloomberg L.P. Chart by The Fixed Income Strategies Group RBC WM