US government debt prices slipped on Thursday after an early safe-haven bid for Treasuries faded and traders took profits. "This week we had a decent rally, which was really a correction of an oversold condition," said John Canavan, analyst at Stone and McCarthy Research Associates.
"You saw no significant capitulation until yesterday and then today, you saw a little bit of profit-taking from those who may have gotten longer earlier in the week," he said. Treasuries prices rose early in the session as investors sought safe harbour from an overnight fall in stock prices tied to concern that China's economy might overheat, leading to higher interest rates.
But when US stocks improved on solid earnings reports from a number of companies, investors' impetus for buying safe-haven Treasuries faded. "As stocks steadied, that provided a little more reason not to buy Treasuries," Canavan said.
A reading of April Mid-Atlantic business conditions from the Philadelphia Fed painting a picture of a stagnant manufacturing sector elicited no bond market reaction. Instead, investors seemed more intent on booking profits.
"The market started to get a bit overbought. Now we're taking a breather," said Duncan Balsbaugh, senior market analyst for government bonds at Thomson IFR. As dealers stepped to the sidelines, 10-year notes slipped 4/32 in price for a yield of 4.67 percent, up a basis point from Wednesday but still down 7 this week.
Thirty-year bonds fell 9/32 for a yield of 4.84 percent. The week had so far been kind to bond bulls, with everything from tame news on inflation to renewed signs of strain in housing supporting the market.
But it was only a matter of time before the rally ran into some technical barriers, which it did when benchmark yields hit 4.63 percent. At the short end, two-year notes were steady and yielding 4.65 percent. With no influential economic data due until Tuesday, Treasuries will likely be rangebound for the next several days, Canavan said. "The 10-year yield may edge back up to 4.70 percent; nothing terribly exciting," he said.