US Treasury debt prices jumped on Tuesday, recovering from the worst selloff in more than a month, as falling stocks and suggestions of a sluggish economic recovery revived a safety bid for bonds. Investors bid heavily for new Treasury bills at auctions as well as for long-dated issues in the open market, sending the 30-year bond price up more than a point.
"There is a safety bid coming back to bonds again," said Andrew Richman, fixed income strategist at SunTrust Private Wealth Management in Palm Beach, Florida. On Friday investors dumped Treasuries, sending benchmark yields to two-week highs, as comments from Federal Reserve Chairman Ben Bernanke raised fears the US central bank was closer to hiking interest rates than previously thought.
The appetite for Treasuries and other low-risk assets re-emerged after a gauge of German investor morale unexpectedly fell in October, adding to recent data that has tempered hopes for a strong global recovery.
Disappointing sales figures from bellwether Johnson & Johnson fanned concerns over third-quarter corporate earnings and whether the US economy will struggle in its bid to end the worst downturn in 70 years. "People are worried about whether quarterly results will meet expectations," Richman said.
The Fed anticipates soft US growth even when the recession ends. On Tuesday, the central bank's second-in-command, Donald Kohn, said, "I don't think a V-shaped recovery is the most likely outcome this time around." An anemic recovery should hold down inflation and enable the Fed to cling to its near-zero rate policy, an economic outlook that supports the bond market.
Benchmark 10-year notes were up 22/32 at 102-19/32. Their yield, which moves inversely to their price, fell 8 basis points from Friday to 3.31 percent. Thirty-year bonds, the longest Treasuries maturity, rallied 1-15/32 in price to yield 4.15 percent, down from 4.24 percent on Friday. The US bond market was shut on Monday in observance of the Columbus Day holiday. On the supply front, the Treasury Department sold a combined $60 billion in three-month and six-month bills to strong demand.
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