NEW YORK: US government debt prices rose on Monday as anxiety over economic weakness in Europe and slowing growth in the United States led investors to favor lower-risk investments over stocks and other risky assets.
A weaker-than-expected private report on business activities in the Chicago region in April fueled jitters that the world's biggest economy is experiencing a spring deceleration for a third straight year, which could trigger another round of large scale bond purchase from the Federal Reserve.
The Institute for Supply Management-Chicago said its index on upper Midwest business activity fell to 56.2 in April, the lowest since November 2009.
"Growth is beginning to fade around the world," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago.
Last Friday, the government reported the gross domestic product from January to March grew at an annualized 2.2 percent, weaker than expected and slower than the 3.0 percent pace posted in the last quarter of 2011.
The March figures on US personal spending and income showed a resilient consumer sector, which accounts for two-thirds of the US economic activity, but they might not be enough to stem further slowing in overall growth.
Worries about Europe slipping into a recession intensified after Spain's economy contracted in the first three months of the year. Spain's fiscal woes deepened after Standard & Poor's cut the credit ratings of 11 Spanish banks on Monday following its downgrade of Spain last week.
"Everyone knows the negatives. No one sees the answers yet," said Carl Kaufman, portfolio manager at Osterweis Capital Management in San Francisco, which oversees about $5 billion.
On below-average trading volume, benchmark 10-year notes traded up 4/32 in price to yield 1.92 percent, down more than 1 basis point from late on Friday. Thirty-year bonds rose 9/32 in price for a 3.11 percent, down 1.5 basis points from Friday's close.
Bets grew on more central bank help to avert a recession across Europe. Treasuries slightly lagged German Bunds with their 10-year yield premium over 10-year Bunds widening about 1 basis point near 25 basis points.
Purchases from fund managers to rebalance their portfolios at month-end should keep benchmark yields at their lowest levels since early February, analysts said.
The 10-year yield is on track to fall 29 basis points, its biggest monthly decline since September, while the 30-year yield is set to fall 24 basis points, the first drop in four months.
Another supportive factor for longer-dated Treasuries is the ongoing purchases from the Federal Reserve for "Operation Twist," which is its $400 billion program aimed to hold down mortgage rates and other long-term borrowing costs.
The Fed is slated to buy $1.50 billion to $2.00 billion in government debt due in Feb 2036 to Feb 2042. It will announce its next schedule at 2 p.m. (1800 GMT).
"People think as long as the Fed has their back, everything would be fine," Osterweis' Kaufman said.
While the recent spate of disappointing data on the US and Europe has supported demand for Treasuries, analysts said the figures are not dire enough to push yields into a new, lower trading range because longer inflation expectations have remained in line with Fed's implicit target of 2 percent.
"Without inflation expectations falling, it would be tough for 10-years (Treasuries) to rally much further," BMO's Hoogendoorn said.
Comments
Comments are closed.