By Richard Leong
NEW YORK (Reuters) - U.S. Treasury debt prices jumped on Thursday, driving yields to fresh historic lows, as investors flocked to long-dated bonds to try to lock in safe returns at year-end.
Bonds rallied for a third straight session with long yields shedding 50 basis points since the Federal Reserve cut its benchmark interest rate target to near zero percent in an attempt to end a year-long recession.
The U.S. central bank also said after Tuesday's policy meeting it was considering buying long-maturity Treasuries, as it pledged to purchase mortgage securities with the goal to revive the housing market, the center of the economic malaise.
"There is still reverberation from the Fed's dramatic move," said Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto.
The price on benchmark 10-year Treasury notes last traded up about 1 point at 114-20/32 after hitting a high of 115-4/32. Their yield, which moves inversely to price, was 2.0966 percent compared with 2.203 percent late Wednesday. It was above the 2.055 percent set earlier, which was the lowest level seen since the early 1950s.
The 30-year bond, the longest Treasuries maturity, was up more than 2 points. Its yield last traded at 2.569 percent, just above a record low of 2.563 percent set earlier.
HEAVY SUPPLY, LESS GRIM DATA
Even the growing debt the government has accumulated to fund its menu of programs to resuscitate the economy has not curbed the scramble for Treasuries, analysts said.
"The risk is that foreign investors will stop buying them, but with a few hiccups, (the debt sales) have been surprisingly smooth," Lascelles said.
On the supply front, the Treasury Department said it will sell a record $38 billion in two-year notes on Monday and an exceptionally high $28 billion in five-year debt on Tuesday. The offered amounts were higher than analysts forecast.
Bonds came off their highs briefly after a pair of reports confirmed the view of an economy in recession though perhaps not deteriorating as rapidly as some traders had feared.
Government data showed first-time filings for unemployment benefits came roughly in line with analyst forecasts last week, though they remained at a level consistent with recession.
"This provides further evidence that not only are we in a deep recession, it may be one of the worst recessions seen in the past 50 years," said Dana Saporta, an economist at Dresdner Kleinwort in New York.
Initial jobless claims fell by 21,000 last week, but the four-week moving average, which evens out weekly volatility, rose by nearly 3,000 to keep it near a 26-year high.
Meanwhile, factory activity in the Mid-Atlantic region fell but at a slower pace in December than November, according to the Philadelphia Fed report.
Among ultra short-dated debt, the rate on three-month Treasury bills was near zero percent after dipping briefly into negative territory, underscoring the intense bids for cash among jittery investors.
(Additional reporting by Burton Frierson; Editing by Andrea Ricci)
