U.S. Treasury debt prices rose on Friday as an absence of key data or debt auctions left investors mulling the dubious nature of the economic recovery, and turning to lower-risk government debt as a result.
Even though benchmark yields hover near six-month lows, many investors see room for even higher Treasuries prices in mounting evidence that the economic recovery is sputtering.
“The global economies continue to cool, the U.S. economic data continues to underwhelm and is deteriorating and (Federal Reserve Chairman Ben) Bernanke has made it clear that continued accommodation is needed,” said Scott Graham, head of government bond trading at BMO Capital Markets in Chicago.
“The short-term headwinds continue to be unrelenting and while the risk/reward of being long is increasingly skewed as the markets approach levels last seen at the beginning of QE2, the desk maintains its bullish stance,” Graham said.
The Fed’s $600 billion Treasuries purchase program, known as QE2, is scheduled to finish at the end of June. The U.S. central bank was not due to buy Treasuries on Friday, but will release its purchase schedule for the rest of the month in the afternoon.
With the week’s $66 billion of debt supply out of the way, investors focused on the big picture, which was mostly colored by recent signs of still struggling labor and housing markets, a slowdown in manufacturing, and a debt crisis in Europe.
Benchmark 10-year Treasury notes were trading 8/32 higher in price to yield 2.97 percent, down from 3.00 percent late on Thursday and not far above the six-month low of 2.92 percent reached yesterday.
“Treasuries are trading higher this morning as investors are beginning to get the feeling that QE3, or some new sort of Fed stimulus, may not be a pipe dream after all,” said Kevin Giddis, president of fixed-income capital markets at Morgan Keegan & Company in Memphis.
“The bond market does look to be in a sound position with momentum on its side after the Treasury’s successful sale of threes, tens and thirties this week. The first two were outstanding sales and the 30-year was pretty solid, considering the big decline in yields the past two weeks,” Giddis said.
Two-year Treasury notes were trading unchanged in price to yield 0.42 percent, while 30-year bonds were 19/32 higher in price to yield 4.19 percent, down from 4.23 percent late on Thursday.
