* Chicago PMI surges to 2-1/2-year high in October
* U.S. jobless claims fall in line with forecast
* Treasuries poised for second month of gains
By Richard Leong
NEW YORK, Oct 31 (Reuters) - U.S. Treasuries prices fell on
Thursday as a stunningly strong report on Midwest business
activity eased some pessimism that fourth-quarter growth may be
sub-par following the recent federal government shutdown.
Despite Thursday's decline, the bond market was poised for a
second month of gains after a dismal summer.
The Institute for Supply Management-Chicago said its
regional business index jumped to 65.9 in October from 55.7 last
month. The reading handily beat the 55.0 forecast by analysts
and was the highest since March 2011.
"This was just ridiculously strong," said Eric Green, global
head of rates and currency research and strategy at TD
Securities in New York.
Still, Green and other analysts downplayed the importance of
the data as many other indicators have signaled slower demand
and hiring in the aftermath of the first partial federal
government shutdown in 17 years. They stuck to the view that the
Federal Reserve will keep its current $85-billion monthly bond
purchases into early 2014 to support the economy.
The federal government's report on Thursday of a decline in
new jobless claims in the latest week added to signs of
resilience in the economy. New claims fell by 10,000 to 340,000,
close to an estimated 339,000 claims.
"Things are not unraveling even though we might get another
disappointing jobs report," Green said.
The Labor Department will release its non-farm payrolls
report for October at the end of next week. While the monthly
jobs data is always closely watched, the report for October is
of particular interest as investors are looking for signs of the
impact of the government shutdown during the first half of the
In brisk volume, the bond market added to losses on
Wednesday tied to a perceived less-dovish view from the Fed
following its recent two-day meeting. Analysts concluded the Fed
left the door open to reducing stimulus in the coming months
even though policy-makers acknowledged slower growth due to the
"They are trying to reinforce the view they are data
dependent. They really don't know," said James Sarni, managing
principal at Payden & Rygel in Los Angeles, which oversees $80
billion in assets.
The Fed bought $927 million worth of Treasuries due in
November 2024 to May 2030, the latest purchase in its
Treasuries prices rose earlier along with German Bunds as
disappointing euro zone data raised hopes that the European
Central Bank might lower interest rates next week in an effort
to support that region's struggling economy.
"A lot of people think next week the ECB might cut rates or
provide more liquidity," said David Keeble, global head of
interest rates strategy at Credit Agricole Corporate &
Investment Bank in New York.
The European Union's statistics office reported that euro
zone inflation sagged to a near four-year low in October with
unemployment lingering at record highs in September. "This plays
into more action from the ECB," Keeble said.
Benchmark 10-year Treasury notes were 9/32 lower
in price with a yield of 2.560 percent, up 3 basis points from
late on Wednesday. They lagged their German counterparts
, with the 10-year yield premium rising to 85 basis
points, the highest since mid-September, according to Reuters
About $251 billion worth of Treasuries changed hands as of
noon Thursday, 40 percent above their 20-day average, according
to ICAP, the world's biggest interdealer broker in U.S.
The 10-year yield has fallen 50 basis points from a two-year
high of 3 percent. The yield touched a three-month low last week
at 2.471 percent.
Month-to-date, Treasuries have earned a total return of 0.49
percent following a 0.7 percent gain in September. But they were
still down 1.53 percent so far this year, according to an index
compiled by Barclays.
Treasuries have trailed other types of U.S. bonds this year.
High-yield or junk bonds, for example, have earned a 2.48
percent return so far in October, raising its year-to-date gain
to 6.30 percent, according to Barclays data.
- Budget, Tax & Economy
- government shutdown