US Treasuries gained on Thursday as a mixed batch of economic data gave no indication the current recovery was any stronger than previously thought, enhancing the allure of safe-haven bonds. Fewer-than-expected jobless claims in the latest week boosted recovery hopes but optimism was tempered by data showing fewer-than-expected housing starts and in particular weakness in single-family units.
The economic outlook was clouded further by the Philadelphia Federal Reserve Bank's business activity report, which showed a surprisingly strong reading overall but trouble in key areas such as employment and new orders. "We're doing pretty well post-Philly Fed," said Carl Lantz, US interest rate strategist at Credit Suisse in New York.
"The headline was strong but all the details were relatively weak." The benchmark 10-year Treasury note was last up 11/32, yielding 3.44 percent versus 3.48 percent at Wednesday's close. A sell-off on Wednesday pushed yields up to the 3.50 percent area, which has attracted strong buying recently. Analysts also have been watching 2.50 percent on five-year notes as a key area that draws buying.
The market showed little reaction to news the Treasury will bring $112 billion of bonds to market next week in auctions of two-, five- and seven-year notes. Given that there are only $20 billion worth of coupon securities maturing during the week, the bulk of the auctions represent new cash being raised.
The combined weekly auction total is below the record of $115 billion set in July, though the individual offering sizes of two-, five- and seven-year notes are the highest ever for each of those maturities. Two-year notes were flat on the day, yielding 1.0 percent. Five-year debt was up 6/32, yielding 2.42 percent and seven-year notes gained 9/32 to yield 3.07 percent.
The government's rising debt load weighed on Treasuries earlier this year due to concerns over the cost of economic and financial bailouts as well as falling tax receipts amid the worst recession in decades. It has been less of a market issue recently in the wake of several strongly bid auction results.
Many bond investors are also betting that the economy's recovery will be slow and bumpy, especially at the end of the year when the initial rebound wears off. Thursday's mixed data illustrated for some bond investors the reasons for adopting this cautious view on the economy, even though hopes for a sustained recovery have fuelled a stunning rally on Wall Street in the last six months.
"I think there may be a little anticipation that at some point some equity investors are going to be taking some money off the table," said David Dietze, chief investment strategist at Point View Financial Services, Summit, New Jersey. "And of course where are they going to rotate to? Treasuries are your typical antidote to equity market risk."