US Treasuries investors will watch in a holiday-shortened next week to see if bonds can continue recent price gains, driven by worries the economic recovery is slowing and by continued global demand for US debt. The data calendar next week is relatively thin, no US Treasury coupon issuance is scheduled, and Federal Reserve officials will be mum ahead of their two-day policy meeting the following week.
US markets are closed on Monday for the Martin Luther King, Jr. Day holiday. Treasuries have started off 2010 with a bang, posting the biggest two-week dip in yields in six months, and investors are keen to see if there is room for more price upside.
"Short covering in light of a struggling equity market and relief over a solid 30-year bond auction enabled the Treasury rally," said Carley Garner, senior analyst at DeCarley Trading in Las Vegas. "We feel like there are still some shorts to cover early next week."
Recent gains were fuelled by some evidence economic recovery may be slowing, including a surprise fall in December US non-farm payrolls and an unexpected decline in US retail sales. Prices were also bolstered by relief after auctions of $84 billion of US government securities this week were met with solid demand. The two-week rise in Treasuries prices is a change in tack. During 2009, benchmark 10-year Treasury notes posted their worst performance in a decade, and December was the worst month for the notes in over five years.
The 2010 price rise "is corrective action" and "allows for further gains," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut. Further gains could be fuelled by any disappointment in upcoming data.
Among highlights next week will be the producer price index for December, to be released on Wednesday. The median of forecasts from analysts polled by Reuters is for producer prices to have been flat last month after a 1.8 percent rise in November.
Producer prices excluding food and energy are expected to have risen by 0.1 percent from a 0.5 percent rise the month previous. December housing starts, also to be released on Wednesday, will also be followed by investors, with those starts expected to have risen to a seasonally adjusted annual rate of 580,000 units from 574,000 in November. Weekly initial claims for jobless benefits, to be released on Thursday, are forecast to have eased to 440,000 from 444,000 the previous week.