Treasuries outlook: prices rise as consumer sentiment takes a hit

US Treasuries prices rose on Friday as lower stock prices and an unexpected drop in March US consumer sentiment enhanced the allure of safe-haven US government debt. With $66 billion of new debt supply out of the way this week, investors were also moving to take advantage of yields hovering near the highest in almost a year, analysts said.
Prices rose on Friday after the Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment for early March tumbled to the lowest reading since December 2011. "We're past the auctions, we're still near the highest yields in roughly a year, which are levels that are appealing to some investors, and the confidence numbers are buoying the market," said David Coard, head of fixed income sales and trading at The Williams Capital Group in New York.
Benchmark 10-year Treasury notes on Friday traded 11/32 higher in price to yield 2.00 percent, down from 2.04 percent late Thursday. Yields remain not far off the 11-month high of 2.09 percent reached late last week after data showing stronger-than-expected US jobs growth in February. The Treasury this week sold three-year and 10-year notes as well as 30-year bonds, and investors were buying to absorb the supply, Coard said. Treasuries were also generally supported by expectations the Federal Reserve will continue to buy assets over the near term in an effort to prop up the economy.
The Fed will hold its next policy meeting on Tuesday and Wednesday. While recent, improved data on the labour market and retail sales have fuelled optimism on economic growth, some investors say there has not been enough evidence of a recovery to spur Fed officials to scale back their program of buying $85 billion per month of mortgage-backed securities and Treasuries.
"The doves on the committee will unequivocally want to see more progress made on the employment backdrop before they even contemplate tightening the reins on the latest round" of quantitative easing, said Michael Cloherty, head of US rates strategy at RBC Capital Markets in New York. The Fed will issue its policy statement at the close of the two-day meeting on Wednesday, and Fed Chairman Ben Bernanke is expected to conduct a press conference afterwards. "There won't be any dramatic change," said Richard Schlanger, portfolio manager at Pioneer Government Income Fund, at Boston-based Pioneer Investments, a firm with $200 billion in assets under management.