European economy weakens forcing more stimulus

European economy weakens forcing more stimulus

European economy weakens forcing more stimulus (By Susanne Walker Barton, Bloomberg News)

Treasuries advanced after European Central Bank President Mario Draghi cut growth and inflation forecasts, saying the bank will expand stimulus by allowing officials to buy higher proportions of each euro area member’s debt.

U.S. government bond yields fell as Draghi said the euro region may see negative inflation rates in coming months and that the bank will use all tools within its mandate if needed to boost the economy. The move comes as the Federal Reserve is considering raising U.S. interest rates this month.

“It’s the underlying malaise with the global economy,” said Aaron Kohli, an interest-rate strategist in New York at BMO Capital Markets, one of 22 primary dealers that trade with the Fed. “It’s adding to the gloom of the market. We’re likely to see the Fed more patient or more cautious in raising rates.”

Benchmark 10-year Treasury note yields fell one basis point, or 0.01 percentage point, to 2.18 percent as of 10:17 a.m. in New York.

Futures traders are betting the Fed will push back raising its fed funds rate. The probability of an increase in September has fallen to 28 percent, from 38 percent at the end of last week, according to data compiled by Bloomberg. The figures are based on the assumption that the benchmark will average 0.375 percent after the first rise.

Filings for unemployment benefits rose to an eight-week high, a Labor Department report showed Thursday. Jobless claims rose by 12,000 to 282,000 in the week ended Aug. 29. The median forecast in a Bloomberg survey called for 275,000 new applications.

“There was a surprise uptick in claims and that’s triggered buying in the Treasury market,” said Ian Lyngen, a government- bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

A private report Wednesday showed hiring was on pace in August, while a separate Fed report showed the U.S. economy expanded across most regions and industries. A Labor Department report due Friday is forecast to show further jobs growth.