Prices of US Treasury debt climbed on Thursday, supported by weak durable goods orders and flight-to-safety buying after violence in Turkey and Iraq.
"The higher market is a combination of the weak data today and some geopolitical concerns with the bombings in Iraq and Turkey," said Joseph Shatz, government strategist at Merrill Lynch in New York.
While the soft durable goods orders for May were the primary driver behind the market rally, analysts said the numbers did not change expectations that the Federal Reserve will move to boost official interest rates next week.
"It is only a small (market) movement and it hasn't really changed the market's outlook for the path of Fed tightening," Shatz said. "The market is still pricing in a 25 basis point tightening at the June 30 meeting and about 125 basis points of tightening by the end of the year."
As of Thursday afternoon, the benchmark 10-year note was up 13/32 in price, with its yield easing to 4.65 percent from 4.70 percent on Wednesday. The 10-year yield fell to as low as 4.61 percent on Thursday morning, the lowest in nearly a month and a break-out from a recent trading range.
The five-year Treasury note gained 8/32 in price, lowering its yield to 3.85 percent from 3.91 percent late on Wednesday, while the 30-year bond rose 20/32, taking yields to 5.34 percent from 5.39 percent.
With longer-dated debt outperforming, the yield curve flattened, reversing a recent steepening shift.
The two-year note was yielding 2.76 percent after having fetched 2.785 percent at a well-received auction of $25 billion in new paper on Wednesday.
Orders for durable goods fell 1.6 percent in May. Analysts had looked for a 1.4 percent gain. Orders for non-defence goods excluding aircraft, a proxy for business investment, dropped 3.0 percent, surprising analysts who had expected a rebound.
Orders were still up strongly in annual terms and analysts emphasised the data were so volatile that it was too soon to say this weakness was the start of a trend.
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