US Treasury debt prices rebounded on Friday as a depressed stock market and talk of a possible nuclear test from North Korea bolstered safe-haven bonds. Treasuries had already performed surprisingly well given Thursday's solid batch on economic data, but a Wall Street Journal report making the rounds gave the market an afternoon jolt higher. The article cited a US official saying the United States had warned China that North Korea might be getting ready to test nuclear weapons, a sure way to get bond bulls' juices flowing.
As stocks took a dive on the news, the US benchmark 10-year Treasury note climbed 11/32 for a yield of 4.26 percent, down from 4.30 percent on Thursday. Benchmark 10-year yields have fallen sharply over the past month, plunging from a high of 4.697 hit late in March.
Soaring oil prices, which broke through $55 a barrel on Friday, also supported bonds at the margin, as dealers pondered a possible slowdown in consumption during the second quarter.
A speech from a top central banker was a mixed blessing for Treasuries. Fed Board Governor Donald Kohn appeared calm on prospects for higher inflation, but also suggested monetary tightening still had some way to go.
He added the federal funds rate still appeared to be below the level required to keep inflation stable and employment on the path to recovery, but suggested economic growth remained solid. Some in the market were less sanguine.
"The Fed Governors seem to be looking at a rear view mirror," said Andrew Brenner, head of fixed-income at Investec US "If you look at the trends that are developing, things look very poor."
Bond yields had hit two-month lows early in the week as some soft data prompted some to consider the possibility of slower economic growth. But rates jumped back up after jobs and manufacturing figures cast doubt on the prospect of a soft patch.
Two-year notes were more subdued than the benchmark maturity on Friday, adding 1/32 for a yield of 3.61 percent as investors decided it was time to flatten the yield curve again. As they did so, the spread between 10- and two-year notes hit a new four-year low of 65 basis points.
"We believe the curve should continue its flattening trajectory, and we could see some buyers enter the market as conditions stabilise and value opportunities are assessed," said Richard Gilhooly, fixed-income strategist at BNP Paribas.
The five-year note was up 5/32 in price on Friday, lowering yields to 3.93 percent from 3.96 percent. At the long-end, the 30-year bond added 30/32, taking its yield to 4.58 percent from 4.64 percent.
There were no major economic releases on Friday, leaving the market to reflect on the startling strength of Thursday's Philadelphia Fed business survey, a report which seriously challenged recent talk of an economic slowdown.