Short-dated US Treasury prices up

Short-dated US Treasuries rose on Wednesday as unexpectedly weak data on jobs and regional business activity reminded investors that it may take a long time for the economy to return to robust health. Private sector employers cut more jobs than forecast and business activity in the US Midwest failed to return to growth in September as expected, enhancing the safe-haven allure of government bonds.
The data suggested the economy remains too weak to withstand Federal Reserve interest rate hikes, reversing several days of short-dated debt selling on worries the Fed was closer to tightening monetary policy. Atlanta Federal Reserve Bank President Dennis Lockhart underscored this message, saying the US economy was starting a tentative recovery, but it is too early to embark on a full-on exit from the central bank's accommodative policies.
"All points to the Fed not moving any time soon," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. "There is still a large drag on the economy and inflation is not an issue." Two-year Treasury notes rose 3/32 on the day, yielding 0.96 percent versus 1.01 percent at Tuesday's close.
But those gains came at the expense of longer dated debt. Benchmark 10-year notes fell 2/32 in price to yield 3.31 percent. Still, it has not been a bad quarter's worth of gains for 10-year notes, which has resulted in about a 23-basis-point fall in yields through the end of September. It also marks a reversal from the roughly 130 basis point rise in yields over the first and second quarters.
For the month of September alone, benchmark yields fell about 10 basis points. The 30-year long bond fell nearly a point on the day in afternoon trading. Long bonds were last down 13/32, yielding 4.04 percent versus 4.02 percent at Tuesday's close.
Shorter dated debt is considered particularly sensitive to changes in the outlook for Federal Reserve interest rate policy and had underperformed longer dated bonds in recent sessions over concerns the US central bank would tighten sooner than expected. Fed Governor Kevin Warsh sparked those worries when he said on Friday that the central bank may begin to tighten its super-loose monetary policy before it is clearly necessary.