US government bond prices rose on Thursday, after data showing surprisingly weak durable goods orders ex-transportation and the steepest fall in new home prices since 1970 supported the Federal Reserve's view of moderate economic growth.
Analysts warned, however, that bond prices whipsaw on Friday if an advance reading of US third-quarter economic growth matches or beats the market's consensus estimate.
The data allayed concerns about inflation and investors brushed off higher-than-expected readings on overall durable goods orders and new home sales, analysts said. Bond bulls snapped up Treasuries as the data supported the Federal Reserve's view of moderate economic growth, which should encourage the US central bank to keep official interest rates on hold.
"Even though a jump in sales suggests that the housing sector could be stabilising, the fact that the median new home sale price had to be down 9.7 percent from a year ago to create those sales still suggests weakness," said John Canavan, market strategist at Stone and McCarthy Research Associates, in Princeton, New Jersey.
US 10-year Treasury notes traded up 11/32 in price for a yield of 4.73 percent versus 4.77 percent late on Wednesday. Bond yields and prices move inversely.
The rise extended Wednesday's rally sparked after the Fed left the federal funds rate - the benchmark for US borrowing costs - at 5.25 percent for a third straight meeting.
But analysts said Treasuries' rally may reverse if the advance reading of US third quarter gross domestic product due on Friday matches or exceeds economists' median forecast of 2.2 percent.
"The Treasury market is putting lot of stock in moderating growth and is looking for something a little worse than 2 percent," said Beth Malloy, bond market analyst with research company, Briefing.com in Chicago.
"The market may be a little ahead of itself," Malloy said. "If the number comes in a little better than what we are looking for, it may be kind of ugly," Malloy added. Two-year notes - which respond closely to expectations for Federal Reserve interest rate moves - were up 2/32 in price to yield 4.82 percent, compared with 4.85 percent on Wednesday.
At Thursday's sale, the $14 billion of five-year notes were sold at a high yield of 4.694 percent and a bid-to-cover ratio, an indication of demand, of 2.12, which was below average for such sales in the year-to-date. Indirect bidders, which include foreign central banks, took 21.5 percent of the auction, also below average.
"It was a weaker than expected auction, given the fact that we had a really strong auction last month. These month end auctions really aren't being well received," said George Goncalves, Treasury and agency trading strategist with Banc of America Securities in New York.
After the sale, the five-year note remained steady at higher price levels, trading up 7/32 in price for a yield of 4.70 percent, compared with 4.70 percent before the sale and 4.75 percent late on Wednesday. The 30-year bond traded up 20/32 in price for a yield of 4.84 percent, against 4.89 percent late on Wednesday.
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