US Treasuries rallied for a fourth day on Thursday as credit concerns, rising jobless claims and weaker regional factories boosted expectations the Federal Reserve would cut rates again soon.
Investors sought the safety of government bonds after disappointing quarterly results from Bank of America underscored the toll that credit market turmoil was continuing to take on financial institutions, pushing stocks lower.
A weaker-than-expected regional manufacturing report added to a strong bid in Treasuries already evident in the previous session, when yields fell by the largest margin in six weeks on another round of weak housing data.
"It's a continuation of the move that began yesterday," said Michael Cloherty, head of rate strategy at Banc of America Securities in New York. "The market has clearly swung to being well in favour of the rate cut."
US short-term interest rate futures showed the perceived chance of a 25 basis points rate cut at the Fed's next regularly scheduled policy meeting have risen to about 70 percent, from about 54 percent late on Wednesday.
"The uncertainty around the outlook today is very high," Cleveland Federal Reserve President Sandra Pianalto told the Ohio Grantmakers Forum annual conference. The Fed cut interest rates by a half percentage point to 4.75 percent on September 18 to shield the US economy from the slumping housing market and a global credit crunch. As the perceived chance of another rate cut at the Fed's October 30-31 meeting rose, the two-year note's yield slipped to 3.94 percent with its price up 3/32. It was as low as 3.89 percent earlier in the session.
A bond's yield moves inversely to its price. Yields on the 10-year note slipped to 4.51 percent. It hit 4.495 percent earlier in the session, which was the lowest since September 19, the day after the Fed cut interest rates by 50 basis points.
New jobless claims jumped during the week ended Saturday, offering a hint that housing's decline might be starting to take a toll on the labour market.
Yields moved lower after the Philadelphia Federal Reserve Bank said its business activity index was at 6.8 in October versus 10.9 in September. The capital expenditures and new orders components of the index declined, while the prices paid index jumped to its highest level since August 2006. On a brighter economic note, the Conference Board said its index of leading economic indicators rose 0.3 percent in September after falling 0.8 percent in August.
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