US Treasury debt prices slipped on Friday as investors' increased tolerance for risk, evident in the stock market's gains, came at the expense of safe-haven US government debt. The S&P 500 stock market index was on track for its seventh straight week of gains.
Government figures showed US retail sales in December rose 0.6 percent overall and 0.5 percent excluding auto sales. The report was slightly weaker than economists had forecast and initially pushed bond prices higher. But sales excluding autos, gasoline and food rose "a healthy 0.6 percent," said Ian Shepherdson, chief US economist at High Frequency Economics.
From that perspective, retail sales were "fairly strong," and thus mildly negative for safe-haven assets like Treasuries, said Ray Humphries, portfolio manager of The Hartford Inflation Plus Fund (HIPAX) at Hartford Investment Management Co, the latter with $161.7 billion in assets under management. For investors taking long Treasury positions, stronger economic growth, if accompanied by inflation, is a key risk because inflation erodes the value of fixed-income securities.
Benchmark 10-year Treasuries fell 7/32 on Friday, their yields rising to 3.33 percent from 3.30 percent late Thursday. Squaring positions before a three-day holiday weekend also weighed on US Treasuries prices on Friday afternoon. The 10-year yield had slipped as low as 3.29 percent early on Friday, its lowest level in three weeks. Ten-year yields are as low as they are now because of the Federal Reserve's large-scale asset purchases, said Brian Levitt, economist at Oppenheimer Funds in New York, with $165 billion in assets under management.
As part of its $600 billion bond-buying program aimed at accelerating growth and lowering the stubbornly high jobless rate, the Fed bought $7.31 billion in notes due 2015 and 2016 on Friday and will buy next week as much as $19.5 billion in Treasuries and $2 billion in TIPS.
The Fed's purchases could provide a bid for government debt in the coming week, especially after the US central bank was more aggressive than expected on Thursday, when it purchased $8.41 billion in notes due 2016 and 2017, traders said. Five-year notes fell 4/32 in price, their yields rising to 1.93 percent from 1.89 percent late Thursday. Thirty-year bonds fell 15/32 in price, their yields rising to 4.53 percent, from 4.50 percent on Thursday.