US Treasuries plunged in thin volume on Friday as surging stocks curbed government debt's safe haven allure, even after a dismal manufacturing report signalled the United States was sinking deeper into recession. Despite the drop in prices on Friday however, benchmark yields, which move inversely to prices, remain not too far above the five-decade low reached in mid-December.
Yields were pushed to those lows in a meteoric 2008 price rally driven by flight to safety bidding due to the global financial crisis. "While liquidity is very poor for the first trading day of the year, bonds are getting crushed while stocks soar," said Andrew Brenner, senior vice president at MF Global in New York.
The benchmark 10-year Treasury note traded 1-25/32 lower in price for a yield of 2.41 percent versus 2.22 percent late on Wednesday and up from its December 18 five-decade low of 2.04 percent. The US bond market was closed on Thursday for the New Year's Day holiday.
Friday's move was the biggest one-day drop in the benchmark yield in over seven weeks. "Stronger equities are having an impact on Treasuries," said Mary Ann Hurley, senior Treasuries trader in Seattle at brokerage D.A. Davidson. Major US stock indexes gained more than 3 percent, led by large companies in the technology sector. US bond market trade was choppy as well as light.
Treasuries gained briefly early in the day after a report showed that US manufacturing in December contracted further, sinking to its lowest ebb since 1980. "We have expectations of pretty weak fourth quarter and first quarter economic activity.
Everyone is worried about how deep the recession will be," said Kim Rupert, managing director of global fixed income analysis with Action Economics LLC in San Francisco. "There is ongoing demand for the safety of Treasuries," Rupert added.
However, a key factor that may pull Treasury prices lower again next week is supply via three-year note and 10-year note auctions, traders said. The US government will issue between $1.5 trillion and $2 trillion of debt this year, analysts expect, to pay for its massive financial system rescue attempts.
That tide of supply may ultimately sink government debt prices, analysts worry. The two-year Treasury note traded 6/32 lower in price for a yield of 0.87 percent from 0.77 percent late on Wednesday, while the 30-year bond traded over three points lower for a yield of 2.82 percent from 2.68 percent.