US Treasuries edged down in Asia on Friday, with gains in regional stocks spurring mild selling as many investors take a breather from a hectic month and with the approach of the quarter-end and Japan's fiscal year-end.
Treasuries have taken a hit in the past few weeks as equity markets have recovered and dealers absorbed a slew of new supply, including nearly $50 billion of new two- and five-year notes just as investors have started to think twice about such low yields.
The US government bond market is set to end on a weak note this week despite an array of data showing the economy is likely in a recession, including a drop in consumer confidence to a five-year low and house prices falling at a record rate.
The data has reinforced expectations the Federal Reserve could cut rates by a half-point to 1.75 percent at its next meeting in late April after having already chopped them by 3 percentage points to 2.25 percent in seven months.
Friday's economic figures include personal income and spending in February and the final reading of Reuters/University of Michigan consumer sentiment survey. Renewed stability in the US mortgage-backed securities market has also restored some confidence among investors that the worst of the credit crisis may have passed with the swift collapse of investment bank Bear Stearns.
That stability has come as foreign central banks have stepped up purchases of agency mortgage bonds. Central bank holdings of agencies surged $33.5 billion in the four weeks ending on Wednesday, making up almost half of the $73 billion increase this year, according to Fed data.
Japanese investors close their books on the current financial year on Monday, which has contributed to some of the tight conditions in money and repo markets, traders said. June T-note futures fell 4/32 to 118-7.5/32, staying off the five-year high of 120-1/32 struck earlier in the month. Trade in futures was light at 14,500 lots.
Benchmark 10-year notes were little changed to yield 3.551 percent, rising 12 basis points on the week. Two-year notes dipped 1/32 to yield 1.719 percent, up 2 basis points and up 10 basis points on the week.
Money markets have suffered new strains as banks have become very reluctant to lend funds at the end of the first quarter, but analysts said such strains should ease in April. Three-month dollar LIBOR was set at 2.696 percent on Thursday, about 45 basis points above the current fed funds rate target and 72 basis points above three-month overnight index swaps.