US Treasuries ended slightly higher in price on Thursday in choppy trading, lifted by safe-haven buying on the eve of federal spending cuts that could curb US economic growth. Month-end buying as money managers adjusted their average portfolio duration to meet benchmarks added a bid to the market.
Automatic across-the-board spending cuts, known as sequestration, will be introduced on Friday. Many economists expect those budget cuts may reduce US economic growth by around half a percentage point. "The risks are to the downside in part from the potential additional fiscal drag from the sequestration," said Michael Pond, head of global inflation-linked research at Barclays Capital, in New York.
The International Monetary Fund said on Thursday it would likely cut its 2013 growth forecasts for the United States by at least a 0.5 percentage point if the cuts are fully implemented. The IMF now projects that the US economy will grow 2 percent this year. "Even if they come up with an alternative, the alternative would not be no cuts, but maybe different cuts. That still means growth will not be as strong as it would have been without the cuts," Pond added.
Bonds were little moved by data earlier on Thursday that showed that US gross domestic product grew 0.1 percent in the fourth quarter of 2012, less than the 0.5 percent growth that the market had expected. US Treasuries have largely held in a small range after a dramatic rally on Monday when an Italian election left the country with no clear majority government and renewed concerns about the region's ability to manage its debt problems.
The benchmark 10-year US Treasury note's yield traded at around 1.90 percent on Thursday, after rising as high as 2.06 percent on February 14. The debt had traded in a higher yield range of around 1.90 percent to 2.06 percent since late January, before falling as low as 1.84 percent on Monday. Late Thursday afternoon, the 10-year note was up 3/32 in price. The government bonds have also been supported by comments from Federal Reserve Chairman Ben Bernanke this week that strongly defended the US central bank's bond purchase program.
The Fed said on Thursday that it will buy $45 billion in Treasuries in March as part of its ongoing purchases, including a purchase on Friday of between $750 million and $1 billion in debt with maturities ranging from August 15, 2023, to February 15, 2031. On Thursday, the Fed purchased $1.45 billion of bonds with maturities ranging from February 15, 2036, to August 15, 2042.
Comments
Comments are closed.