US government debt prices fell on Friday, boosting long-dated yields to an almost two-week high, as a fourth straight day of stock gains and greater optimism about the economy cut the bid for safe-haven debt. Prices also fell as investors prepared for $69 billion in coupon-bearing supply the Treasury plans to sell in the coming week.
Analysts said financial markets have been pulled between competing views that the economy is in danger of a double-dip recession and that recent deceleration is merely a bump on the road to recovery. This week's winning streak on Wall Street reduced the safe-haven appeal of US government debt.
The bond market also focused on making room for new supply coming to market next week. The US Treasury Department will sell $35 billion in three-year debt on Monday, $21 billion in 10-year notes on Tuesday and $13 billion in 30-year bonds on Wednesday.
In the "when-issued" market, the three-year issue to be sold Monday yielded 1.065 percent. This compared with a clearing yield of 1.220 percent at last month's three-year note auction. Next week's debt supply follows good demand on Thursday for $12 billion of 10-year Treasury Inflation-Protected Securities (TIPS), despite little evidence of price pressure and worries over deflation.
Despite four straight days of gains, Wall Street has lagged Treasuries, with the S&P 500 down 12 percent since April. Barclays Capital's total return index on US Treasuries has risen 5.64 percent year to date. The 30-year Treasury bond last traded down 09/32 in price at 105-29/32. Its yield, which moves in the opposite direction to price, was 4.03 percent, up 1.5 basis points from late Thursday.
Benchmark 10-year notes dipped 4/32 in price for a yield of 3.05 percent, up from 3.04 percent on Thursday. The 10-year yield hit a 14-month low last week at 2.88 percent, less than three months after climbing to a 1-1/2 year intraday high at 4.01 percent, according to Reuters data. "It had gotten a little overdone on the negative sentiment with worries about a double-dip recession," said Haverford's Donaldson of last week's flattening of the yield curve.
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