Treasuries outlook: prices gain with rising appetite for low-risk assets

US Treasury debt prices rose on Friday as a backup in yields this week brought buyers into the market, while ongoing worries about the pace of global growth pushed stocks lower and bolstered the safe-haven appeal of US government debt. Yields rose earlier this week on some evidence US economic growth was gaining traction, and expectations Spain will move to request a bailout, which could blunt some of the harm Europe's debt crisis might have on global growth.
This week's gain in yields had gone far enough to spur buying interest on Friday, especially with continued nervousness over the condition of the US economy and the eventual outcome of Europe's debt crisis, analysts said. Stocks fell by over 1 percent on Friday in reduced appetite for risk after earnings from General Electric and Microsoft rekindled worries about corporate profits. The move to lower-risk assets bolstered Treasuries.
"There is heightened nervousness about the earnings season with a lot of stuff coming out next week, and it is going to be challenging to get the top of the line growth for a lot of these firms," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.
Benchmark 10-year Treasury notes traded 18/32 higher in price on Friday to yield 1.77 percent, down from 1.83 percent late Thursday. Benchmark notes were on track for the biggest single-day drop in yield since late September, although yields are higher on the week, having climbed from 1.66 percent last Friday. Thirty-year bonds traded 1-12/32 higher in price to yield 2.94 percent, down from 3.01 percent late Thursday.
Treasuries were supported on Friday by concern Spain may not after all ask for a bailout any time soon, after Spanish Prime Minister Mariano Rajoy said he had not yet decided whether to request a sovereign bailout from the euro zone and the European Central Bank. "Much of what has been driving us has been what is happening in Europe and that is still the case here. There is a little bit of disappointment over what is happening in Spain and that is helping to drive the Treasuries market higher," said David Coard, head of fixed income sales and trading at The Williams Capital Group in New York.