TREASURIES-U.S. yields slide after jobless claims, but massive supply looms

By Gertrude Chavez-Dreyfuss NEW YORK, April 8 (Reuters) - U.S. Treasury yields fell on Thursday, pressured by worse-than-expected initial jobless claims and continued short-covering following a sell-off in the last month that took benchmark 10-year rates to more than one-year peaks. Dovish Federal Reserve minutes released on Wednesday, which reiterated that the U.S. central bank was in no rush to raise interest rates, also weighed on Treasury yields. Thursday's higher-than-expected U.S. jobless claims further pushed yields lower. Initial claims for state unemployment benefits totaled a seasonally-adjusted 744,000 for the week ended April 3, compared with 728,000 in the prior week. Continued unemployment claims though fell to 3.73 million for the week of March 27. "Falling incidence of the coronavirus will lower initial claims," said Stan Shipley, fixed income strategist, at Evecore ISI in New York. He added that overall the data showed the "labor market is continuing to heal and should be neutral for Treasury yields." But with a massive $370 billion in Treasury supply looming over the next few weeks, analysts said it's only a matter of time before yields start shooting higher again. Supply starts next week with the auction of 3-year, 10-year- and 30-year debt. "Back-to-back supply for the next three weeks with no break, and I would think rates have to move higher by next week from today's levels," said Tom di Galoma, managing director at Seaport Global Holdings. "In my view, 10-year yields could easily trade back to 1.75% next week." Concerns about supply have steepened the yield curve for the last three sessions, but it flattened a bit on Thursday. The spread between 5-year notes and 30-year bonds narrowed to 147.60 basis points. In midmorning trading, the U.S. 10-year Treasury yield was down at 1.64% from 1.654% on Wednesday. U.S. 30-year yields fell to 2.325% from Wednesday's 2.336%. U.S. 5-year note yields, which typically reflect interest rate expectations, dropped for a fourth straight session to 0.849% from Wednesday's 0.858%. Recent declines in the 5-year yield suggested that investors do not believe the Fed will raise rates earlier than expected. At the March meeting, the Fed said it did not expect to raise interest rates until 2024. Despite the Fed's dovish comments in the policy meeting minutes, the eurodollar futures market, which tracks interest rate expectations, still has fully priced in a Fed hike by March 2023. In the aftermath of the strong U.S. non-farm payrolls report last Friday, eurodollar futures show a 100% chance of rate increases by December 2022. April 8 Thursday 10:36AM New York / 1436 GMT Price Current Net Yield % Change (bps) Three-month bills 0.015 0.0152 0.000 Six-month bills 0.0325 0.033 0.003 Two-year note 99-244/256 0.1488 -0.004 Three-year note 99-206/256 0.317 -0.005 Five-year note 99-138/256 0.8448 -0.013 Seven-year note 99-164/256 1.3041 -0.013 10-year note 95-84/256 1.6404 -0.014 20-year bond 94-88/256 2.2291 -0.011 30-year bond 90-96/256 2.3238 -0.012 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 12.75 -0.50 spread U.S. 3-year dollar swap 15.75 -0.25 spread U.S. 5-year dollar swap 12.00 -0.25 spread U.S. 10-year dollar swap 2.25 -0.75 spread U.S. 30-year dollar swap -24.50 -1.00 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis)