US Treasuries prices rose on Tuesday as bleak views of global growth and the upcoming earnings season prompted investors to dump riskier assets and pour money into safe havens. The International Monetary Fund warned that the United States faces meagre growth of about 2 percent this year and next and predicted the euro zone economy would shrink 0.4 percent in 2012. It downgraded its outlook on China, the world's second-largest economy.
The fund, one of Greece's main lenders, also said that Athens would miss the five-year debt reduction target that is a condition for the country's 130 billion euro bailout. The IMF outlook "was adding to the downbeat sentiment. It was a confirmation of slow growth globally," said Gennadiy Goldberg, an interest rate strategist with TD Securities in New York. "That's why we are setting back into this trading range."
Key US stock indexes also dropped as investors awaited what many fear could be a disappointing earnings season. "Earnings season is under way, and it does not bode to be particularly good," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.
"I'd like to see whether that takes the edge off stocks and other risk assets," he added. Thomson Reuters data through Friday showed 90 companies in the S&P 500 have lowered outlooks versus 21 raised outlooks. The resulting ratio of negative to positive outlooks of 4.3 is the weakest showing since the third quarter of 2001. The concerns about Greece and global growth overshadowed data on Friday showing the US jobless rate fell in September to 7.8 percent, its lowest since January 2009. The Labour Department's September payroll report led to a sell-off in Treasuries on Friday and pushed benchmark yields to their highest in about two weeks.
The US bond market was closed on Monday for the Columbus Day holiday. Safe-haven appetite for Treasuries was mitigated by some selling in anticipation of this week's $66 billion in coupon supply.
On Tuesday, the Treasury Department sold $32 billion in three-year notes at a high yield of 0.346 percent. The Treasury Department will sell $21 billion in 10-year debt on Wednesday and $13 billion in 30-year bonds on Thursday. In addition, the Federal Reserve resumed transactions under its Operation Twist program, which involves selling shorter-dated Treasuries and purchasing longer-dated issues in a bid to hold down long-term borrowing costs to help the economy. It bought $1.89 billion in Treasuries due in February 2036 to August 2042.
Fed Vice Chairwoman Janet Yellen was scheduled to speak at 8:30 pm (0030 GMT) about sovereign risk and financial markets at an event sponsored by the IMF and the Japanese Ministry of Finance. "The market is struggling with a lot of moving parts," said Robert Tipp, chief investment strategist with Prudential Fixed Income in Newark, New Jersey. "At the end of the day, we'll be in a pretty tight trading range."
On the open market, benchmark 10-year notes were up 05/32 in price, off the day's highs ahead of Wednesday's debt sale, to yield 1.715 percent. That was down from 1.748 percent late on Friday, the highest level since September 24. Thirty-year bonds rose 25/32 in price to yield 2.930 percent, down from Friday's close of 2.9703. The 30-year yield slipped below its 200-day moving average of 2.939 percent, according to Reuters data.
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