By Kate Duguid
NEW YORK, March 26 (Reuters) - Prices on U.S. Treasury bonds rallied on Thursday morning with the equity market after weekly applications for unemployment benefits surged to an all-time high, suggesting the market had already priced in expectations for an abysmal data release.
The number of Americans filing claims for unemployment benefits surged to a record of more than 3 million last week as strict measures to contain the coronavirus pandemic ground the country to a sudden halt, unleashing a wave of layoffs that likely brought an end to the longest employment boom in U.S. history.
The Labor Department's jobless report is the clearest indication yet of the effects of the coronavirus on the economy. But government bond prices rose along with U.S. stocks which had already swung dramatically lower this month. Markets also drew support from the Federal Reserve's extraordinary steps to bolster markets and the U.S. Congress' $2 trillion stimulus package.
The benchmark 10-year U.S. Treasury yield was last 4 basis points lower to 0.816%, with the long bond last down 2.9 basis points to 1.392%. At the short end, the two-year yield was 3.3 basis points lower at 0.293%. Yields move inversely to price.
"Jobless claims were terrible. I think the market thought it would be terrible so they got their number here," said Stan Shipley, macro research analyst at Evercore ISI.
"You'll probably get a bad number – maybe not as bad – next week and April payrolls will be terrible. We're still several months away from this turning higher."
The spread between the three-month and 10-year yields, the Fed's preferred measure of the yield curve, flattened by about 5 basis points to 85 basis points on Thursday. A flatter yield curve is an indication of lower expectations for future growth. In this instance it also reflects a three-month Treasury bill trading at a negative yield.
Continued strong demand for the safe and highly liquid short-term debt sent the three-month yield to minus 0.058% on Thursday, and the one-month yield fell to an all-time low of minus 0.107%.
Short-term yields, which move in step with the federal funds rate, have fallen dramatically since the Fed cut its key interest rate to zero earlier this month to combat the economic effects of the coronavirus. (Reporting by Kate Duguid; Editing by David Gregorio)