US Treasury Outlook: prices may rise if auctions fare well

22 Nov, 2009

US Treasury debt prices could rise next week if another round of government debt auctions are met with solid investor demand. The Treasury will auction $118 billion of two-year, five-year and seven-year notes in another key test of investor appetite for the massive doses of US government debt.
-- October existing and new home sales expected to rise
But some analysts do not expect demand for Treasuries to dry up just yet. "At a minimum we believe the auction process next week will provide rate players that have cash flow to reinvest and park cash until 2010," said George Goncalves, head of fixed income rates strategy at Cantor Fitzgerald in New York. "The bias should remain with lower rates," Goncalves said. Treasury debt yields move inversely to prices.
Amongst a slew of economic data next week, the government's revised estimate of third quarter growth, set for Tuesday, is seen as one of the highlights. Analysts expect third quarter gross domestic product to be downwardly revised to growth of 2.9 percent from the previous estimate of 3.5 percent, according to the median of forecasts in a Reuters' poll.
"Retail sales, residential and non-residential construction spending, inventory investment and net exports were all weaker than initially estimated," said Steven Wood, chief economist at Insight Economics in Danville, California. October existing home sales on Monday and October new home sales on Wednesday will also be closely watched.
Existing home sales are expected to have risen to a seasonally adjusted annual rate of 5.7 million last month from 5.57 million in September, while new home sales are expected to have risen to 410,000 from 402,000. Personal income and consumption data for October, to be released on Wednesday, will be parsed for any clues as to the pace of economic recovery.
According to the median of forecasts in the Reuters poll, income is expected to have risen by 0.2 percent after remaining flat in September, while consumption is expected to have risen by 0.5 percent from a 0.5 percent decline the month previous.
"With climate and health bills fuelling business uncertainty and lingering skepticism regarding the sustainability of the recovery, consumers have only minimally loosened their purse strings over the past several months," said Lindsey Piegza, economist at FTN Financial in New York. The Treasuries market will be closed on Thursday for the US Thanksgiving Day holiday.

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