Treasuries fall amid recovery

US treasuries fell, following the worst year since at least 1978, before reports this week that economists said will show the US recovery is gaining momentum.

Ten-year yields were near the highest level since June on speculation factories expanded and companies cut the fewest workers in two years last month. A Labour Department report last week showed initial jobless claims fell to the lowest level since July 2008. Pacific Investment Management, which runs the world's biggest bond fund, said it is reducing holdings of US and UK debt as those nations expand borrowing.

The yield on the benchmark 10-year note rose six basis points, or 0.06 percentage point, to 3.89 per cent in London, according to BGCantor Market Data. The 3.375 per cent security dropped 15/32, or $4.69 (Dh17.21) per $1,000 face amount, to 95 25/32. Yields were 3.91 per cent on December 31, the highest level since June 11.

"Treasuries are looking weak," said Christian Carrillo, a senior interest-rate strategist at Societe Generale in Tokyo. The securities were "helped lower apparently by the better- than-expected jobless claims number. Expect further weakness in the short-term unless ISM surprises to the downside."

The spread between two- and 10-year yields, a barometer of the health of the US economy, widened to a record last month as investors bet an accelerating recovery will fuel inflation and damp demand during unprecedented government debt sales. The difference was 2.72 percentage points yesterday, from a record 2.88 percentage points on Decmeber 22.

In Asia, the yield on 10-year Australian debt increased 11 basis points to 5.76 per cent, the biggest increase in almost a week. Japanese government bonds fell yesterday, dented by a rise in the Nikkei stock average and the yen's recent drop to a four-month low against the dollar.

JGBs were hurt after US Treasuries retreated on Thursday after lower-than-expected weekly US jobless claims bolstered expectations of an economic recovery.

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