US Treasury debt prices fell on Friday, ending lower for a third straight week, as weaker euro-zone bonds and stock gains muted the impact of surprisingly weak data on existing-home sales. An unexpected 2.6 percent decline in April existing-home sales caused a bout of shortcovering and pushed briefly bond prices above their session lows, traders and analysts said.
However, it was not enough to sustain buying ahead of the three-day Memorial day weekend. The US bond market closed early at 2 pm (1800 GMT) and will stay shut on Monday.
In addition to surging stocks, the bond market struggled on fading prospects of a Federal Reserve interest rate cut in 2007; some $28 billion in supply from the competing corporate bond sector and selling by mortgage players in a bid to hedge their portfolios against further yield increases.
"All those things are working against the Treasuries market right now," said Richard Gordon, fixed income market strategist at Wachovia Securities in Charlotte, North Carolina. The benchmark 10-year Treasury yield was 4.86 percent, up 2 basis points from late Thursday and up nearly a quarter percentage point so far this month,
The two-year note yield, which is sensitive to the market's outlook to Fed policy, was 4.86 percent, up 2 basis points from late on Thursday and up 26 basis points since at the end of April.
"The expected rate cuts this year are being taken out. The Fed could be on hold for a while," Gordon said. US short-term rate futures suggested that traders now see a toss-up in a Fed rate cut by year-end against 66 percent chance of a cut a week ago.
Meanwhile, weaker foreign debt, especially Bunds, was another culprit in pushing US 10-year yields near four-month highs this week. "Some of the overseas markets are pushing lower so that makes it harder for Treasuries to rally," said Jeff Given, portfolio manager at John Hancock Funds in Boston.
A faltering Bunds market has weighed more heavily on Treasuries in recent days. There are growing worries that solid euro zone growth could lead the ECB to hike rates further to curb inflation, adding to the sentiment that global stocks promise better returns than bonds.
June Bund future registered a contract low at 112.26 on Friday, as signs of stronger growth could push the European Central Bank to hike interest rates further. After another week of losses, some analysts are confident that Treasuries are poised for a rebound next week in light of severely oversold signals and expected purchases for month-end portfolio rebalancing.
Among other cash maturities, five-year notes traded down 3/32 in price for a 4.80 percent, up 2 basis point from late Thursday, while the long bond fell 6/32 for a 5.00 percent, up 1 basis point from late on Thursday. In the derivatives market, swap spreads were mostly steady with 10-year spreads ending the week at 55.50 basis points.