Prices for US Treasuries rose on Thursday as soft data pointed to a sluggish a recovery in the world's biggest economy, fuelling bids for safe-haven investments. The number of Americans filing new claims for unemployment benefits rose last week and factory activity in the nation's Mid-Atlantic region cooled in April, further signs of a moderation in economic growth.
"Over the last month to month and a half, the bond market has anticipated that we are entering a soft patch, and today's economic statistics were mostly soft and supported that view," said Dan Heckman, senior fixed-income strategist at US Bank Wealth Management in Minneapolis.
"We're now just on the edge of seeing some of the negative impact from the sequestration (federal budget cuts) and we'll see more of that potential impact this month," he said. "We don't think sequestration creates a huge headwind, but it nonetheless is a headwind." The benchmark 10-year Treasury note was trading 4/32 higher in price to yield 1.686 percent, just above Wednesday's intraday low of 1.673 percent, the lowest in over four months.
Ten-year notes "are still bouncing around 1.69 (percent), 1.70 (percent), which is a resistance level," said Matt Duch, a portfolio manager at Calvert Investments in Bethesda, Maryland. Though investors have some "sticker shock" at holding Treasuries for long at these prices, he said, yields could move even lower if 10-years continue to close below 1.70 percent. The 30-year bond rose 12/32 to yield 2.863 percent, compared with 2.878 percent late on Wednesday.
Prices also found support from the Federal Reserve's purchase of $3.38 billion of Treasuries maturing between May 2020 and February 2023 as part of its quantitative easing monetary stimulus program aimed at fostering economic growth and cutting unemployment. The Treasury auctioned $18 billion of 5-year Treasury Inflation-Protected Securities (TIPS) on Thursday at a high yield of negative 1.311 percent, as well, an original issue auction scheduled to be reopened in August and again in December.
But the auction overall was weak, analysts said, with some investor reluctance to buy the securities at current yield levels. "That was a very rich part of the TIPS curve. It never cheapened," said Chris McReynolds, head of US Treasury trading at Barclays in New York. Between soft economic data and a recent selloff in commodities, he said, "it's definitely made people less worried about inflation.