US Treasuries prices fell on Tuesday as investors cashed in on year-end gains, while data pointing to some strength in the US economy undermined the safe-haven appeal of US government debt and bolstered stocks. Data showed the pace of growth in the US manufacturing sector accelerated in December to the highest since June, while construction spending surged to a near 1-1/2-year high in November.
The data added to recent evidence the US economic recovery was gaining some traction, albeit at a tepid pace. Benchmark 10-year Treasury notes were trading 19/32 lower in price to yield 1.94 percent, up from 1.87 percent late Friday. Yields remain not far off the 1.67 percent level reached in September, which was the lowest yield in at least 60 years.
Treasuries had a banner year in 2011, posting the biggest dip in yield since 2008. Benchmark yields began trade in 2011 above 3.3 percent. "The outlook is for higher yields in 2012. This is not an especially brave forecast given how low yields closed the year out at 1.88 percent on Friday," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York.
"Net net, the economy is starting off the New Year with a good first step," Rupkey said. "The ISM and construction reports are more supportive of a gross domestic product (growth) that will be closer to 3 percent in 2012 as opposed to a more pessimistic forecast of 1-1/2 to 2 percent for GDP this year." Investors have to balance tentative signs of improvement in the US economy with uncertainty over the eurozone debt crisis, analysts said, with the world economy still seen vulnerable in 2012.
Optimism over the outlook won out on Tuesday however, and 30-year bonds traded 1-19/32 lower in price to yield 2.97 percent, up from 2.88 percent late Friday. "As we embark on 2012, we cannot help but notice that once more the US economy is off to a strong start but there are developing trends that can interfere with the current economic progress," said Dimitri Delis, fixed income strategist at BMO Capital Markets in Chicago.
While Tuesday's data supported some optimism for the US economic recovery, investors are looking ahead to Friday's December payrolls data for any evidence the labour market might be pulling out of its slump. The median of forecasts from analysts polled by Reuters is for the government to report the US economy added 150,000 jobs in December, up from 120,000 in November.
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