US Treasury prices made slight gains on Friday as an absence of fresh economic data allowed bonds to resume a bull run that has dominated for over two months, driven by expectations of slower growth.
Most investors expect the US economy to continue to slow and that the Federal Reserve will not need to raise interest rates further any time soon to curb inflation. "The bond market is on its way toward lower interest rates as economic data portray a cooling economy," said Sharon Stark, chief fixed income strategist at Stifel Nicolaus & Co in Baltimore.
Bond prices have generally been rising since late June, and yields falling, with the yield on the benchmark 10-year Treasury note shedding about 42 basis points in the last 10 weeks. Yields rose through much of this week however, as investors took profits on the recent bull run in Treasuries, which took yields to five-month lows.
But the bulls took over again on Friday, with the 10-year note trading 3/32 higher in price for a yield of 4.78 percent from 4.79 percent late on Thursday. A Fed official's remarks on Friday reinforced investor expectations the US central bank will continue to pause in raising rates.
Treasury prices briefly extended gains after Cleveland Fed President Sandra Pianalto said stability of inflation expectations had been a factor in her support of a pause in the bank's interest rate hikes last month. The two-year note was trading unchanged in price for a yield of 4.82 percent, while five-year notes were 2/32 higher price for a yield of 4.72 percent from 4.74 percent late on Thursday.
The 30-year bond traded 7/32 higher in price for a yield of 4.92 percent. The Fed kept rates on hold at its August policy meeting after 17 straight increases that had taken the benchmark overnight fed funds rate to 5.25 percent, fuelling some speculation that the next move could be a cut.
Fed fund futures point to no chance the Fed will raise rates by 0.25 percent at its September 25 policy meeting. Traders said on Friday the bond market could have a slight flight-to-safety bid ahead of Monday's fifth anniversary of the September 11, 2001, attacks on the United States.
"There is some level of buying going on ahead of the weekend going into 9/11 on Monday - people don't want to be short going into the weekend ahead of that," said one Treasury debt trader who did not wish to be identified.
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