(Adds 7-yr auction results; Barkin, Evans comments) By Chuck Mikolajczak Sept 24 - U.S. Treasury yields fell on Thursday as labor market data signaled the economic recovery may be running out of gas, but moved off lows after a stronger-than-expected report on the housing sector. Initial claims for state unemployment benefits increased 4,000 to a seasonally-adjusted 870,000 for the week ended Sept. 19, compared to 866,000 in the prior week and the 840,000 forecast. Data for the prior week was revised to show 6,000 more applications received than previously reported. Claims remain well above the peak during the Great Recession from 2007 to 2009, with talks for a new fiscal stimulus package at a standstill and seeming unlikely to be reached before the Nov. 3 presidential election. Without fresh aid, the United States is "taking a very serious and unnecessary risk," said Chicago Federal Reserve Bank President Charles Evans on Thursday. "People want to sell the market because of what is going to take place in the election, then there are those who need to buy yield and any time the market backs up they are right in there," said Tom di Galoma, managing director at Seaport Global Holdings in New York. "That is why we are in a very tight trading range at this point until we see bigger news on further stimulus or something that could drive the market one way or the other." A report from the Commerce Department that showed new single-family home sales rose to their highest level in nearly 14 years in August helped yields pare declines, as the housing market continues to be a bright spot even as the economic recovery seems to be sputtering. The yield on 10-year Treasury notes was down 0.7 basis points to 0.669%. The yield on the 10-year remained within the six-basis-point range it has held since the Fed's most recent policy statement on Sept. 16. On Thursday, Boston Federal Reserve Bank President Eric Rosengren said the U.S. economy is far from maximum employment or 2% inflation, and interest rates will stay low for several years. Also commenting was Richmond Federal Reserve Bank President Tom Barkin, who said while the central bank's new policy may help to modestly boost inflation expectations it has the freedom to raise rates if financial stability risks appear or if inflation rises too quickly. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 0.2 basis points at 0.137%. Bidding for an afternoon auction of $50 billion worth of seven-year notes was described as solid by analysts, with dealers accounting for 20.5% of accepted bids compared to 21.7% on average, according to a note from Ben Jeffery of BMO Capital Markets. September 24 Thursday 2:21PM New York / 1821 GMT Price US T BONDS DEC0 176-28/32 0-13/32 10YR TNotes DEC0 139-140/256 0-12/256 Price Current Net Yield % Change (bps) Three-month bills 0.095 0.0963 -0.003 Six-month bills 0.105 0.1065 -0.001 Two-year note 99-250/256 0.1367 -0.002 Three-year note 99-230/256 0.1593 0.000 Five-year note 99-222/256 0.2768 -0.002 Seven-year note 100-72/256 0.4587 -0.002 10-year note 99-148/256 0.6692 -0.007 20-year bond 98-228/256 1.1878 -0.018 30-year bond 99-68/256 1.4052 -0.020 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.00 0.75 spread U.S. 3-year dollar swap 8.25 0.75 spread U.S. 5-year dollar swap 6.50 0.25 spread U.S. 10-year dollar swap 2.00 1.00 spread U.S. 30-year dollar swap -34.00 1.75 spread (Reporting by Chuck Mikolajczak Editing by Nick Zieminski and Tom Brown)
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