Treasuries outlook: yields fall as weak US GDP adds to growth fears

Benchmark US Treasuries yields fell on Friday after data showed the US economy grew at a slower-than-expected pace in the first quarter, adding to fears that next week's closely watched payrolls report for April may also disappoint. Although US economic growth regained speed in the first quarter, the pace was less than expected, heightening fears an already weakening economy could struggle to cope with deep government spending cuts and higher taxes.
The data came after Spain, the euro zone's fourth-biggest economy, said growth will contract by 1.3 percent this year, more than previously forecast, while unemployment will hold at record highs over the next two years. "The economic conditions continue to deteriorate, not just here but globally, and it continues to fuel the drive for duration," said Tom Tucci, head of Treasuries trading at CIBC in New York.
Investors are now focused on next Friday's monthly payroll's report, which is expected to show that employers added 150,000 jobs in April, according to the median estimate of economists polled by Reuters. Benchmark 10-year notes were up 12/32 in price on Friday to yield 1.67 percent, just above the four-month low of 1.64 percent briefly reached on Tuesday after a false tweet of an explosion at the White House.
Traders said there is technical resistance on the 10-year notes at yields of around 1.65 percent. Thirty-year bonds rose 29/32 in price to yield 2.86 percent, down from 2.91 percent late on Thursday. Yields on two-year notes also dropped to their lowest levels since August as stronger-than-excepted tax receipts at the US Treasury led to speculation that the government would further reduce the already dwindling supply of Treasuries bills, leading some investors to reach out to coupon-bearing debt.
The Treasury on Thursday said that it will sell $76 billion in bills next week, $9 billion less than it typically sells. Two-year note yields dropped 1 basis point to 22 basis points. Bond investors will also be watching for signals from Federal Reserve policy makers on the US central bank's bond purchase program after the Fed's meeting next week, on Tuesday and Wednesday.
Some think Chairman Ben Bernanke and other top Fed officials will shift their focus back to buying more bonds to help an economy that continues to grow below expectations. The Federal Reserve on Friday bought $3.378 billion in bonds that will mature in August 2020 to February 2023 as part of the program. It will purchase between $1.25 billion and $1.75 billion in debt due 2036 and 2043 on Monday.