Government Bonds Weaken Ahead of Jobs Report, Treasury Auctions

Government bonds weakened on Thursday as investors looked ahead to a key employment report being released on Friday.

The yield on the benchmark 10-year U.S. Treasury note ticked up to 2.352%, the highest closing level since July 11, from 2.332% on Wednesday. Yields rise as bond prices fall.

Treasury yields have worked their way higher in recent sessions, buoyed by signs of economic growth and investors' increasing acceptance by of the Federal Reserve's outlook for inflation. Central bank officials have maintained that sluggish consumer price data reflects transitory factors in the economy and that pressure is building for them to rise, which will require additional interest-rate increases.

Inflation is a primary threat to long-term government bonds because it erodes the purchasing power of their fixed payments and can cause the Fed to raise interest rates.

Yields rose Thursday morning after new data showed that the number of Americans filing applications for unemployment benefits fell in late September. Initial jobless claims, which are a proxy for layoffs, declined by 12,000 to a seasonally adjusted 260,000 in the week ending Sept. 30, the Labor Department said. That is fewer than the 270,000 new claims that economists surveyed by The Wall Street Journal had expected.

Investors will be closely watching the Labor Department's September jobs report released Friday morning, which may be impacted by recent natural disasters. There is also a wave of Treasury bond supply scheduled for next week, with auctions of three-, 10- and 30-year debt.

Investors have already adjusted for the impact of major storms in their assessment of other data, several said. Hurricane Harvey caused disruptions in shipping along the Gulf Coast, leading U.S. imports to dwindle and the U.S. trade deficit to narrow in August as exports ticked up. The foreign-trade gap in goods and services narrowed to $42.395 billion in August, the Commerce Department said Thursday. Economists surveyed by The Wall Street Journal had expected a trade deficit of $42.7 billion.

The market tends to quiet down before key data releases like the employment figures, said Brian Brennan, a portfolio manager at T. Rowe Price based in Baltimore. Additionally, investors will be watching how strong foreign demand is for Treasury bonds next week, he said.

"Payroll and inflation continue to be the two most important numbers for the market," said Mr. Brennan. There are "not a lot of bets being placed at this point."

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

October 05, 2017 16:42 ET (20:42 GMT)