Rescue bill approved by Senate fails to assuage investors
NEW YORK (MarketWatch) -- Treasury prices extended their gains Thursday, pushing yields down for the fourth day in five, as fresh signs of economic weakness -- persistently high unemployment-insurance claims and a sharp drop in U.S. factory orders -- drew investors seeking out the safe haven of government debt.
Two-year note yields fell 14 basis points, or 0.14%, to 1.69%. Bond price move inversely to their yields.
The Labor Department said initial claims for unemployment benefits in the week ended Sept. 27 rose 1,000 to 497,000, in part due to filings in hurricane-hit states. But the four-week average of continuing claims, a gauge for tracking longer-term jobless trends, rose 46,750 to 3.53 million -- the highest since October 2003. See Economic Report.
U.S. debt extended gains after the Commerce Department said factory ordered fell 4% in August, the most in two years. See full story.
The action in Treasurys also played off the Senate's vote last Wednesday approving a sweetened $700 billion bank-rescue plan. It now goes back the House, which could vote on the high-stakes package on Friday. See full story.
"We will be in a recessionary period for the next several quarters. That's going to become more visible to people in the next round of data," said Jay Mueller, senior portfolio manager at Wells Capital Management. "Treasury prices are probably reasonably reflective of the likely economic fundamentals."
Traders' concerns ranged from the deteriorating U.S economic data to fresh signs of trouble in global markets.
"The hopes that this bailout bill will prove to be a 'silver bullet' fade somewhat as global recession fears rise apace," said William O'Donnell, U.S. government bond strategist at UBS Securities, in a note to clients.
Earlier Thursday, European Central Bank President Jean-Claude Trichet pointed out that downside economic risks have increased in the last month and that the euro zone's governing council discussed an interest-rate cut though it voted to keep Europe's benchmark rate steady. See story.
Payrolls data and fed futures
Also on bond traders' radar screens is the government's closely watched monthly jobs report, due out Friday.
Economists surveyed by MarketWatch are forecasting that nonfarm payrolls shrank by 103,000 jobs in September. The report will come before the House of Representatives is scheduled to vote on the bank-rescue bill the Senate approved, after shocking markets Monday by rejecting a different version.
"A bad employment number would probably ensure a House passage," said Andrew Brenner, co-head of structured products and emerging markets at MF Global.
Meanwhile, interest-rate futures traders raised bets the Federal Reserve will lower its benchmark borrowing rate by the end of the month.
Traders see a 94% chance that the Fed will reduce its target rate by as much as a half percentage point, from 2% currently, by its Oct. 29 meeting. This is up from a 66% probability on Wednesday.