US Treasury prices ended higher on Thursday after weak data raised concerns about slowing US economic growth, which offset higher inflation expectations as oil prices rebounded. New orders for long-lasting US manufactured goods in December recorded their biggest drop in 16 months as lower oil prices and a strong dollar pressured factories, the latest indication that economic growth braked sharply at the end of 2015.
The data supported bonds even as oil price gains raised the spectre of higher inflation, which are negative for bonds and typically send yields higher. "You're trading a lot of conflicting stories. You're trading weakening domestic growth heading into year-end, and you're battling headlines on oil," said Gennaidy Goldberg, an interest rate strategist at TD Securities in New York.
A drop in capital goods shipments excluding defence and aircraft may weigh on gross domestic product figures for the fourth quarter, which will be released on Friday. "We are responding to the weaker capital shipments within the durable goods report ... it really puts downward pressure on tomorrow's GDP estimates," said Ian Lyngen, a senior government bond strategist at CRT Capital in Stamford, Connecticut.
Gross domestic product is expected to have grown 0.8 percent in the fourth quarter, according to the median estimate of 87 economists polled by Reuters. Oil prices were about 3 percent higher on Thursday after the Russian energy minister said Saudi Arabia had proposed that oil-producing countries trim output, which would be the first global deal in over a decade to help clear a glut that has depressed prices for over a year and a half.
Benchmark 10-year notes ended 5/32 in price higher to yield 1.99 percent, after earlier falling as low as 1.97 percent on the weak durable goods data. Demand for bonds helped the US sell $29 billion in new seven-year notes for lower yields. It was the final sale of $90 billion in new coupon-bearing Treasury supply this week. Investment managers, foreign central banks and other direct bidders on Thursday bought a record amount of US seven-year Treasury notes at a yield of 1.759 percent, which was the lowest since a year earlier, Treasury data showed.