US Treasury debt prices jumped on Friday, with long maturities getting the largest lift from investors exiting drooping stock markets and positioning portfolios ahead of a Federal Reserve policymakers' meeting next week. Prices, including sharp gains that left yields on 30-year Treasuries near lows not seen in a year, were also helped by month-end purchases of government debt and disappointment among traders over soft spots in US durable goods data.
Benchmark 10-year yields fell back below 2.50 percent. "We saw some flattening as a function of upcoming supply," said Kim Rupert, managing director at Action Economics in San Francisco. "We have the twos, fives and sevens next week. We also have the FOMC (Federal Open Market Committee). Nobody expects any policy changes but everybody is looking for further tapering. That is keeping the front end under wraps."
Debt prices rose in early trading, despite a heftier-than-forecast 0.7 percent overall increase during June of orders for long-lasting US manufactured items. Analysts and traders focused on weaknesses in airline and other sectors that shook optimism about US economic growth. "The underlying tone of this report was disappointing," said TD Securities strategist Millan Mulraine. "The weak performance in core capital goods shipments ... suggests that this segment of the economy is unlikely to contribute much to economic activity."
The 30-year Treasury bond last traded up 1-1/32 in price, cutting its yield to 3.235 percent, after peaking at 3.304 percent in overseas trading ahead of the durable goods report. Ten-year Treasuries were up 11/32 in price to yield 2.469 percent. The yield had been at 2.503 percent just before the durable goods report. "With that disappointment, it adds still another layer of negative colour for the second quarter," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
"Recent business surveys suggest that business is turning up but we are not getting confirmation of that in the numbers this morning." The reported increase in orders for durable goods, which range from toasters to aircraft that are meant to last three years or more, was above economists' expectations for a 0.5 percent rise and followed a 1.0 percent drop in May.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 1.4 percent after declining 1.2 percent the prior month. The gain in the so-called core capital goods outpaced economists' expectations for only a 0.5 percent increase. Many Treasury traders had an eye to next week, when reports on American employment and gross domestic product will be issued, Vogel said. Both reports often move markets.
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