US Treasury jump on technical momentum

US Treasury debt prices rallied on Thursday, knocking yields to five-months lows, as low inflation and soft manufacturing figures triggered a buying spree that took on a technical momentum of its own.
The benchmark 10-year note jumped 24/32 in price, driving yields through the recent floor of 4.13 percent to hit 4.07 percent, the lowest since early April.
"The shorts were forced to throw in the towel," said Gerald Lucas, chief Treasury and agency strategist at Banc of America Securities.
By late afternoon 10-year yields had inched back up to 4.08 percent, down from 4.16 percent on Wednesday.
The session's key servings of economic data painted a picture of tame consumer prices and slowing manufacturing growth, both beneficial for safe-haven government debt.
While the figures did not change expectations the Federal Reserve will raise rates at its meeting next week, they did fuel speculation the central bank might have to ease the pace of monetary tightening later on.
"The Fed is still going to stay on its measured course to at least 2 percent and after that it's up to the data," Lucas said. "And neither I nor the Fed can predict where the data is going to go."
The rally got a second wind after traders cleared a key level in the bond futures market, enticing momentum funds to bet on further gains.
Talk also circulated that mortgage players keen to hedge against prepayment risk were also dipping their toes in the market.
Yields on two-year notes dropped to 2.42 percent from 2.49 percent on Wednesday, while the gap between them and 10-year yields narrowed to 166 basis points, the lowest levels since September 2001.
Five-year notes climbed 13/32, lowering their yield to 3.29 percent from 3.38 percent. The 30-year bond leaped 1-6/32 in price, taking its yield to 4.88 percent from 4.96 percent.
Dealers noted liquidity was thin since many investors were off for the Jewish new year holiday, perhaps exaggerating price moves.
The rally began when early data showed the consumer price index rose a modest 0.1 percent in August, as forecast. The core measure excluding food and energy also rose 0.1 percent, only half the gain expected in a Reuters survey of economists.