US Treasuries closed out their best quarter in 4-1/2 years on Thursday, with prices rising on the day as fund managers added longer-dated debt maturities to match expected month-end changes of benchmark indexes tracked by their portfolios. Shorter-dated US Treasury yields posted one-month lows on the view that the Federal Reserve would raise interest rates gradually following dovish comments from Fed Chair Janet Yellen earlier this week.
Bond prices seesawed throughout the day, but ultimately moved higher in afternoon trading as investors prepared for a likely solid payrolls report on Friday. Longer-dated Treasuries prices dipped briefly after a stronger-than-expected Chicago Purchasing Management Index report. "This month is a little bit tricky, given that you have quarter-end basically the day before payrolls, which is normally not a day when people put on a whole lot of risk," said Gennadiy Goldberg, a TD Securities interest rates strategist in New York.
"You do see index extension needs pushing yields lower towards the end of the month and I think that's definitely helping today," he said. Benchmark 10-year Treasury notes were up 16/32 in price to yield 1.774 percent, down 5.6 basis points from Wednesday. For the first quarter, the 10-year yield ended 50 basis points lower, the steepest quarterly drop since the second quarter of 2012. The two-year yield touched a one-month low at 0.725 percent earlier Thursday. For the quarter, it rose 8 basis after hitting 1 percent earlier in March.
Collectively, Treasuries racked up a 3.01 percent return in the first quarter, their strongest gain since the third quarter of 2011, according to an index compiled by Bank of America Merrill Lynch. Short-term yields have fallen since Tuesday after Yellen's speech at the Economic Club of New York where she highlighted risks to the global economy and said the Fed should proceed "cautiously" on raising interest rates.
Interest rates futures implied a majority of traders now see only a 5 percent chance of a rate increase at the Fed's next policy meeting, on April 26-27. Economists polled by Reuters project US employers added 205,000 positions in March, compared with 242,000 in February. The jobs growth would leave the unemployment rate at an eight-year low of 4.9 percent.
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